Risk Management in Crypto Trading MCQs

1. : What is the main purpose of risk management in crypto trading?
(A) To eliminate all trading losses
(B) To balance potential profits with acceptable losses
(C) To maximize leverage
(D) To avoid technical analysis

2. : Which tool is most commonly used to limit losses automatically?
(A) Limit order
(B) Stop-loss order
(C) Take-profit order
(D) Market order

3. : What does diversification in trading mean?
(A) Investing all funds in one token
(B) Spreading investments across multiple assets
(C) Only buying stablecoins
(D) Avoiding all volatile assets

4. : The “2% rule” in trading suggests:
(A) Risking no more than 2% of capital on a single trade
(B) Taking profit at 2% gain
(C) Using 2x leverage only
(D) Trading only 2 assets daily

5. : What is the role of position sizing in risk management?
(A) Determining how many trades per day
(B) Deciding the amount of capital allocated to each trade
(C) Predicting market direction
(D) Avoiding fundamental analysis

6. : Which strategy helps protect profits in volatile markets?
(A) Trailing stop
(B) Buying the dip
(C) Unlimited leverage
(D) Dollar-cost averaging

7. : What is the biggest risk of over-leveraging in crypto trading?
(A) Slower profits
(B) Larger losses from small price movements
(C) Higher transaction fees
(D) Longer holding period

8. : Hedging in crypto trading is used to:
(A) Lock in guaranteed profits
(B) Reduce potential losses by offsetting positions
(C) Avoid using exchanges
(D) Increase exposure to one asset

9. : What is risk-to-reward ratio?
(A) Ratio between stop-loss and take-profit targets
(B) Ratio of daily vs. weekly trades
(C) Ratio of leverage vs. margin
(D) Ratio of short vs. long positions

10. : Why should traders avoid emotional trading?
(A) It prevents diversification
(B) It often leads to impulsive and irrational decisions
(C) It reduces profits automatically
(D) It lowers leverage

11. : Which of the following is an example of market risk?
(A) Exchange hack
(B) Sudden price volatility
(C) Lost private keys
(D) Regulatory ban

12. : Keeping funds only on exchanges increases which risk?
(A) Market risk
(B) Security risk
(C) Liquidity risk
(D) Fundamental risk

13. : A stop-loss order placed too tight might:
(A) Secure larger profits
(B) Trigger prematurely due to small fluctuations
(C) Eliminate volatility
(D) Prevent margin calls

14. : Which asset is often used as a hedge against crypto volatility?
(A) Stablecoins
(B) Meme tokens
(C) Highly leveraged altcoins
(D) Non-fungible tokens

15. : What is “liquidity risk” in crypto trading?
(A) Not enough market participants to buy/sell easily
(B) Risk of forgetting private keys
(C) Risk of token inflation
(D) Risk of staking rewards reducing

16. : Risk management in crypto is especially important because:
(A) Crypto markets are highly volatile and operate 24/7
(B) Governments control crypto markets
(C) All cryptos are stable in value
(D) No risk exists in blockchain trading

17. : Which of the following reduces risk exposure?
(A) Using maximum leverage
(B) Diversifying portfolio
(C) Over-trading daily
(D) Ignoring stop-loss orders

18. : What does “capital preservation” mean in trading?
(A) Maximizing daily profits
(B) Protecting trading capital from large losses
(C) Avoiding all trades
(D) Using all-in strategies

19. : Which trading mistake increases risk significantly?
(A) Following a clear strategy
(B) Averaging into trades
(C) Ignoring risk-to-reward ratios
(D) Setting stop-losses

20. : Margin calls occur when:
(A) Traders withdraw profits
(B) Collateral value drops below exchange requirements
(C) Stop-loss hits
(D) Market moves sideways

21. : What is portfolio rebalancing in risk management?
(A) Shifting allocations to maintain risk strategy
(B) Burning tokens
(C) Selling only stablecoins
(D) Increasing leverage after losses

22. : Which of the following is a psychological risk in trading?
(A) Overconfidence after wins
(B) Exchange downtime
(C) Liquidity shortage
(D) Regulatory changes

23. : The Kelly Criterion is used to:
(A) Calculate optimal trade size
(B) Predict crypto market direction
(C) Identify overbought signals
(D) Choose which exchange to use

24. : What does “cutting losses early” mean?
(A) Holding positions despite losses
(B) Closing losing trades quickly before bigger losses
(C) Avoiding profits
(D) Ignoring stop-loss rules

25. : Which type of analysis helps reduce risk by evaluating market news and events?
(A) Technical analysis
(B) Sentiment analysis
(C) Fundamental analysis
(D) Risk-to-reward analysis

26. : What is overtrading?
(A) Trading too frequently without strategy
(B) Using too little leverage
(C) Avoiding multiple trades
(D) Diversifying investments

27. : A “stop-limit” order allows traders to:
(A) Set a stop price and a specific limit price
(B) Avoid trading fees
(C) Guarantee profit levels
(D) Ignore risk management

28. : What is the main risk of keeping all investments in one token?
(A) Higher diversification
(B) Total loss if the token collapses
(C) Lower volatility
(D) Guaranteed profits

29. : Which strategy reduces risk when entering volatile markets?
(A) Dollar-cost averaging
(B) Over-leveraging
(C) All-in buying
(D) Ignoring fundamentals

30. : What is the purpose of setting take-profit targets?
(A) To ensure trades close automatically at desired profit levels
(B) To avoid all losses
(C) To reduce leverage usage
(D) To prevent fees

31. : Risk exposure in trading should always be compared against:
(A) Market volatility
(B) Leverage ratio
(C) Potential reward
(D) Exchange selection

32. : What does “notional value” in leveraged trading represent?
(A) Realized profit
(B) Total value controlled with leverage
(C) Exchange fees
(D) Only margin deposited

33. : What type of risk comes from government policies?
(A) Regulatory risk
(B) Market risk
(C) Security risk
(D) Systematic risk

34. : Which of the following is a risk control technique?
(A) Ignoring volatility
(B) Setting stop-loss orders
(C) Over-leveraging positions
(D) Trading on emotions

35. : What is the main disadvantage of very wide stop-losses?
(A) They may lead to large losses before triggering
(B) They increase fees
(C) They reduce profit potential
(D) They cause instant liquidation

36. : Risk-adjusted returns measure:
(A) Profit compared to the amount of risk taken
(B) Fees paid on exchanges
(C) Number of trades per day
(D) Token burn ratios

37. : Which tool helps estimate potential portfolio losses in extreme conditions?
(A) Moving averages
(B) Value at Risk (VaR)
(C) Stochastic oscillator
(D) Bollinger Bands

38. : What is “drawdown” in trading?
(A) Increase in account balance
(B) Decrease from peak equity to lowest point
(C) Average daily profits
(D) Total lifetime returns

39. : Which risk increases when using unfamiliar exchanges?
(A) Counterparty risk
(B) Diversification risk
(C) Market risk
(D) Tokenomics risk

40. : What does a high Sharpe ratio indicate?
(A) Poor risk-adjusted returns
(B) Strong risk-adjusted performance
(C) Unlimited losses
(D) High leverage only

41. : Which is a key principle of successful risk management?
(A) Risk small, win big
(B) Risk big, win small
(C) Ignore volatility
(D) Trade without planning

42. : Which method ensures discipline in following a risk plan?
(A) Trading journal
(B) Ignoring strategies
(C) Random trading
(D) Overconfidence

43. : In risk management, correlation between assets matters because:
(A) Highly correlated assets may not diversify risk
(B) Correlated assets guarantee profit
(C) It prevents volatility
(D) It eliminates stop-losses

44. : What is the main benefit of cold wallets in trading risk management?
(A) Eliminate trading fees
(B) Protect funds from exchange hacks
(C) Increase profit margins
(D) Speed up transactions

45. : What is the recommended leverage level for beginners?
(A) 50x leverage
(B) 20x leverage
(C) 2x–5x leverage
(D) 100x leverage

46. : What is “systematic risk” in crypto trading?
(A) Risks that affect the entire market
(B) Risks limited to one token
(C) Risks of using leverage
(D) Risks of trading bots

47. : The term “bag holding” refers to:
(A) Holding assets that lost most of their value
(B) Diversifying portfolio
(C) Using cold storage
(D) Taking profits quickly

48. : What should traders do after a losing streak?
(A) Increase leverage
(B) Step back and review strategy
(C) Trade emotionally
(D) Double down immediately

49. : What is the role of contingency planning in trading?
(A) Prepare responses for unexpected events
(B) Avoid all trades
(C) Ignore stop-losses
(D) Increase exposure

50. : Why is risk management essential for long-term crypto traders?
(A) It guarantees profits
(B) It ensures survival through market volatility
(C) It eliminates all risks
(D) It avoids using exchanges