Cryptocurrency trading is highly lucrative. It is one of the reasons it attracts so many investors, and also why it attracts so many malicious actors. We have heard of instances where exchanges and users have lost millions of dollars from hacking and other malicious actions, further underlining why you need to know how to stay safe when trading cryptocurrencies.
Avoid Logging in Using Your Trading Account
We all know some websites allow you to sign in using credentials from other service providers. For example, it is common to sign in to a new website using a Google, Apple, Microsoft, or GitHub account. Some trading platforms and exchanges now allow you to sign in using your trading account or self-custodial wallet credentials like your MetaMask account.
It might seem like a convenient option, but you should never do this. There are reports of people losing their digital currencies after signing in to some websites using these credentials. The safest thing to do is avoid those that ask you to do this. If you still have to sign up, do it with an email and password.
Protect Your Wallets
Your crypto wallet is what you use to store your cryptocurrency. While it might only hold fractions of a cryptocurrency for some, it holds several Bitcoin and Ethereum for others. The value of these cryptocurrencies is immense, so all crypto traders must learn to protect their wallets.
The two basic protection mechanisms are strong passwords and two-factor authentication. Complex, unique passwords deter a malicious actor from trying to access your account. Two-factor authentication adds a layer of security to your wallet and ensures you are the only one who can access it.
Other security measures that work well are using hardware wallets, preferably air-gapped ones, and doing regular software wallet backups if you use this option. Store these backups offline and away from your wallet for additional protection.
Use Reputable Exchanges
While you do not have to worry much about security on established and reputable platforms, you still need to think about crypto prices on these platforms. Some of them give you below-market prices so they can pocket the difference. When you work it, their “cut” comes to be much more than what you would pay as commission or fees on reputable platforms.
Another issue with choosing the wrong platform is that you miss out on many of the features provided by reputable ones. You also miss out on opportunities like trading CFDs. A crypto CFD trading platform allows you to speculate on the prices of cryptocurrencies without taking ownership of them. They allow you to enter the market with little risk because you can exit positions quickly and use options like stop-loss orders to stop trades when the value of the cryptocurrencies falls below a specific threshold.
Develop a Trading Strategy and Stick to It
Crypto prices are significantly more volatile than those of other commodities and investment instruments. It is, therefore, common for people to jump from one cryptocurrency to another when the prices do not trend in the direction they want them to. This is a huge mistake.
Hunting for gains and only sticking with a cryptocurrency when the price increases and ditching it when it drops does not give you enough time to learn everything you can about the cryptocurrency. You do not have time to explore additional investment and trading opportunities that could benefit you.
Second, you miss out on leveraging the volatility. If you are a long-term investor, you might be comfortable taking the bigger wins when the price of cryptocurrency soars. However, some people are more comfortable taking smaller, multiple wins throughout the day, week, or over a few months. Switching to a new cryptocurrency presents an untenable opportunity cost because you miss out on these price dips and increases that you can leverage with the right trading strategies.
Learn to Identify Crypto Scams
Scams are, unfortunately, very common in cryptocurrency, and you can lose your investment funds if you are not careful. One of the main reasons they attract so many people is because they present new, shiny cryptocurrencies with strong marketing that indicates huge returns for everyone who invests. Traders should remember that promises that make a cryptocurrency sound too good are often hiding something.
Another common type of scam is the pump and dump. This strategy entails artificially inflating the price of a cryptocurrency. Scammers do this by posting marketing, videos, and posts on platforms where crypto enthusiasts congregate, like X and Reddit.
Once enough people buyin, and the price rises to the levels they want, the scammers sell all their holdings and disappear with the funds. Traders are left with no one to sell the bogus coin to, and without their money.
Many people concur that cryptocurrencies are the future of finance, but that they are just not there yet. While they become more mainstream, they provide traders and investors with opportunities for significant potential returns. However, they also come with some inherent security risks you should know about to ensure the safety of your funds and assets.
