How to reduce risks when trading cryptocurrency
Cryptocurrencies have long since surpassed some traditional assets in popularity and have confidently taken one of the top spots in terms of transaction volume.
Unlike other assets, trading cryptocurrencies, in addition to exchange rate risks, entails a number of other problems, and it is important to know how to minimize them.
However, some risks associated with using cryptocurrencies can only be identified during the process, so I'll try to share what I've encountered in my work.
Sometimes, a few simple steps can reduce most of the risks listed below to virtually zero and save money.
The main, non-exchange rate risks of cryptocurrency
In addition to exchange rate risks associated with cryptocurrency price volatility, there are other equally important risks you should be aware of if you trade or use cryptocurrencies:
- Problems with transfers – your cryptocurrency may simply not arrive, or the transfer may be stuck in the "In progress" status.
Not long ago, I encountered a situation where, while transferring two Ethereums to a crypto exchange, the transaction was frozen for almost a day. After much back-and-forth, the money finally arrived, but the exchange rate had already changed to a less favorable one.
To reduce the risk of such a situation arising, it is better to transfer large sums in parts; small sums are much less likely to be delayed.
- Exchange hacks – Cryptocurrency exchanges are constantly under attack from hackers, which can result in the loss of funds.
To prevent this from happening, it is advisable not to store money on trading platforms, but to use it only for exchange.
- The wallet failed the AML check – this usually happens if your wallet was used to pay for questionable goods or services, or if funds were received from illegal transactions.
This kind of problem often occurs when exchanging funds, after which the transaction is frozen and the money, at best, is returned.
To prevent this from happening, periodically check your wallet for AML; there are now many services that allow you to do this.
- User errors – almost everyone who has transferred cryptocurrency has made a mistake at least once, most often when choosing a blockchain.
For example, transferring USDT over the ERC-20 network to a TRC-20 address could result in irretrievable loss of funds. Therefore, always double-check not only the address but also the blockchain where the funds will be sent.
- Losing access to your wallet – For a number of reasons, you may need to reinstall your cryptocurrency wallet if you have one installed on your phone. This could result in you losing your key phrase and permanently losing access to your funds.
To prevent this from happening, it is advisable to write the phrase on paper and hide it in a safe place, without specifying which wallet this phrase refers to.
It's easier to prevent any trouble than to try to fix the consequences of these troubles later, and in the case of cryptocurrencies, you can lose your funds irrevocably.
One way to avoid most of the problems is to trade cryptocurrencies through brokers - https://time-forex.com/kriptovaluty/brokery-kriptovalut
In this case, you will not only avoid problems with your wallets, but your funds will also be insured for 20,000 euros.
