Cryptocurrency Trading – Safe Practices
A lot of financial experts and analysts have in recent times been predicting that cryptocurrency is just a bubble that will burst sooner or later, and a ridiculous amount of money being poured into the crypto-world, it is attracting unscrupulous individuals who are trying to prey on trader’s greed and inexperience, at the same time. This article aims to expose some of the most common practices adopted by scammers to deceive the crypto-community and outlines some precautionary measures for Crypto users to avoid them.
A notion that has been built over the years among the crypto-traders and a highly inaccurate one, is that every investor is getting rich by investing in crypto-currencies. This mindset pushes new investors who are yet to study the technology and what it involves, to invest in a hurry, in fear of missing out on the next big altcoin or other spin-off crypto-tokens (Pines, 2019). Many scammers take advantage of this sweet-spot through dubious projects and services, which include the following:
Initial Coin Offerings (ICO)
Initial Coin Offerings involves kick-starting a newly launched project by raising funds for its development. Investors are facilitated through the issuance of newly revealed crypto-tokens in the project, and just to give some perspective, investors have poured billions of dollars in as much as 1000 different ICOs over the past year. While some projects are legitimate, many ICOs are nothing more than a scam, with no ambitious business plans or technical mindset to execute the project.
Many new cryptocurrency technologies make unsubstantiated claims about their project to attract investments. Recently, the US Securities and Exchange Commission (SEC) took down two ICOs on grounds of fraud. They posed as new ICOs to dupe investors of their money. China has gone as far as banning the sale of ICOs, and many individuals who are familiar with how fraudulent projects work, like Jordan Belfort, hold the opinion that ICOs are the biggest scam ever.
Unregulated Trading Exchanges
With a substantial boom in the crypto-currency industry, dozens of brokerage firms and cryptocurrency exchanges have emerged in the markets, most of which are unregulated, thus increasing the chances of undetected fraudulent activities. Investors should conduct proper research and should avoid promotions and promises which look unrealistic. Many firms charge outrageous fees or create hindrances in withdrawing funds. The worst scammers directly straight to the looting of your investment.
Bitcoin Trading Systems
After the crypto-bull run of 2017, people thought of incorporating automated trading systems with Bitcoin trading exchanges. The companies that own these products advertised them as a way to beat the market by arbitrating prices between different exchanges. But everything does not have to be believed. Every Bitcoin transaction has a hefty fee and an expensive withdrawal process, and settlements can take hours. These factors can eliminate any profits and might also end up in losses.
Investments in crypto-currency is generally a risky business, especially after what happened after the crypto bull-run of 2017 when the market crashed unexpectedly. Traders can try to mitigate the risks by following some of the following points:
Invest only what you can afford to lose
Crypto-currency industry moves at a very fast pace and is much more volatile than stocks and bonds. Technologies which are very popular today, but might not even exist a year from now. To put it in simple words, investors should make peace with the possibility of losing everything they are investing. For this reason, one is advised to invest wisely and invest only what you can bear to lose.
A wise investor is one who invests after researching properly about a particular product. Forums like CryptoCompare and Bitcoin Talk can be a good source of information. Research and read up on the Cryptocurrency market and how it works, and while at it, try to stay active and updated about the market because finding authentic information and good reviews is vital for your investment.
Investing in Cryptocurrency CFDs
A Contract for Difference (CFD) is a financial instrument which lets the investor speculate on price movements. This means that you would not be owning any cryptocurrency, nor would you have to go through the hassle of buying or finding the best exchange for your investment. It is the difference between the price of a crypto-token at the time of buying and the current price. Essentially, the price of a CFD increases as the price of the crypto-token increases while it decreases if the market goes downwards.
There are two benefits to investing in CFDs. The first benefit is that CFDs are a regulated product offered by brokerage firms who are given a license by a regulatory authority. They offer a varying degree of protection for your investment, ranging from separate bank accounts to offering compensation schemes. However, investors must be aware of criminal CFDs who are operating outside the legal boundaries of the law.
Secondly, CFD brokers equip you with risk management tools which allows you to limit the amount you can potentially lose. You can set triggering events, which protect you from heavy losses if the market ever moves against you. This is very important in volatile markets. Also, regulated CFD broker will guide their clients in the best way possible and will offer them clear guidance on any applicable fees available.
Pines, L. (2019, June 04). Commodity. Retrieved from Commodity: https://commodity.com/cryptocurrency/avoid-scams/