The Nine Biggest Risks Of Trading Cryptocurrencies And How To Avoid Them

While the cryptocurrency space has become an increasingly exciting one, and more and more mainstream, it is still a new space that comes with certain risks. Cryptocurrencies, and the space around them, are still trying to become fully established which means there are holes for exploits, but some of the risks you need to be aware of can be rather standard and traditional. 

Being an entirely digital asset means that there are concerns that come with being online and the cyber crime that can impact your investments, but cryptocurrency wallets also have certain risks when it comes to private keys and even the exchanges that you use. 

While there is nothing to be afraid of when it comes to Trading cryptocurrency, it is still important, like with any trading, to be smart and pay attention to how you are trading. By looking at this list of 10 major risks, as well as the ways to combat them, you can be on your way to trading a lot more securely.

 #1 Crypto Cyber Crime  (explain how to store private keys)

The cryptocurrency space has seen many headlines around crime where people have seen their digital assets stolen from them. However, it is important to note that it is not the cryptocurrency, or indeed the underlying blockchain, that is at fault here. A lot of the time it is human error. 

When it comes to storing your cryptocurrency, most people will have a wallet that is secured with a private key. That private key and the security of a wallet is unhackable. However, people are able to trick you into giving away that private key in order to access your funds. 

Additionally, people will sometimes assume that they have secured their funds by storing them on cryptocurrency exchanges, but these third-party exchanges do not give you access to your private keys and thus if they are hacked, your money can be stolen. 

The best way to store your private keys is through an offline, or cold wallet. The wallet is never connected to the Internet and thus the threat of cyber crime is totally mitigated. 

How to avoid a Threat of Crypto Cyber Crime

As mentioned above, the best way to avoid cyber crime on your cryptocurrency is to keep that crypto away from the internet totally. This means utilizing cold wallets, or even hardware wallets. These tools mean your cryptocurrency is kept away from potential cyber criminals.

#2 Loss or Destruction of the Private Key

Much like your pin code is the way to access your bank account and those funds, the private key of a crypto wallet is your way to access those funds. It is a very important key that is the actual only way to have access to the funds.

That being said, if this private key is lost, then your access to those funds will also be lost. What is more concerning is that if your private keys are lost or destroyed, there is no one at a bank or Bitcoin branch that can help you get it back. 

Again, losing or destroying Private keys comes down to human error, and sometimes this can happen maliciously via other actors who know where you keep your keys and set out to lock you out from your funds. 

How to protect the Private Key 

There are a few tried and tested methods to keep private keys safe. People have been known to print a paper wallet which is a good way to keep the key off the internet, but it does mean you could lose or destroy that piece of paper, and it also means you will need to keep it safe in a traditional method. 

Some people keep their private key on a computer to make accessing it easier, but this means it is linked to the internet and can be reached by cyber criminals. The best way to keep your private key safe is in an offline storage device especially designed for this task. 

#3 Choosing an Insecure Trading Platform

One of the most common ways that people lose their cryptocurrency is by choosing exchanges and other third-party platforms that are not entirely secure. As mentioned, people often like to keep their assets on exchanges and not have to hold their own private keys. 

However, this means that the crypto actually is in the hands of the exchange, and because echnages are hot targets for hackers, they can often end up being in the news for major hacks and losses. If you decide to go with an exchange that is not well known for security, you are taking a major risk. 

How to pick secure Trading Platform

Picking a secure trading platform is paramount to a good crypto experience. It is important to look for exchanges that are well established and purposefully put a lot of effort into their security. 

You can find out a lot about an exchange by how much attention they pay to their security. For example, PrimeXBT is a well established trading platform that proudly displays its security measures on its page: Read more here. 

#4 Paying too Much to Trade 

While we have looked over risks that can happen to you from hackers and malicious actors, there are also risks in trading that can make the experience unpleasant. One such risk is paying too much to trade. 

Many trading platforms entice people into trading with them without stating how much users will pay in fees. Either that or they will use a method that is confusing and ends up costing a trader too much money.

How to avoid high fees 

It is important to do your research on trading fees as this will help cut the risks of losing too much money. Make sure you find an easy to understand platform that has its rates explicitly stated. 

Using PrimeXBT as an example again ,this platform charges a flat rate, and the rate is also very low coming in at 0.05%

#5 Not Understanding Margin Trading

The Nine Biggest Risks Of Trading Cryptocurrencies And How To Avoid Them - image2 7

Cryptocurrency trading has grown to be a very profitable business and one reason for this is the opportunity to use margin trading. Margin trading means that a user can pu8t less capital into a trade but still make good profits from the lesser amount.

However, margin trading is a risky and complex weight to trade, thus if a trader starts margin trading before they are ready or have done enough research, they can fall into a trap where they can lose a lot of money.

How to reduce risks by Margin Trading

Traders need to first understand how to margin trade well and to be successful in their decision to margin. Simply understanding this way of trading will help reduce the risk, however, there are general ways in trading that help reduce the risks.

Just like any other trading, you want to reduce your general risks, and the same applies to margin trading. Some tips for reducing your risk include planning your trades and sticking to that plan; having a trading strategy that you also follow with your head — and not your heart. 

You can also use margin trading to reduce risks by allowing you to put less of your own capital into the market, the capital you save can then be used to diversify your trades and ensure you have safety nets in place. 

#6 Picking the Wrong Cryptos to Trade

Cryptocurrencies are known to be highly volatile assets, and in the recent years there has been an explosion in the space meaning more and more assets to trade. Having this vast array of coins makes the trading of them a lot more enticing, but also brings in risks. 

Most people will begin their reading journey with Bitcoin, a well established coin that has shown good returns. But there are even times where Bitcoin will be going down and it becomes risky to trade it. 

Many will turn to smaller and lesser known coins when Bitcoin is dipping, and hope to have major returns but these coins are known to be more risky. 

Best cryptocurrency to Invest 2021 

  • Bitcoin

Many more institutional investors are starting to buy Bitcoin — such as Elon Musk at Tesla and Michael Saylor at MicroStrategy.

  • Ethereum

Ethereum is the second largest coin by market cap and is facing a major upgrade in 2021

  • Cardano

Similar to Ethereum, Cardano is showing a lot of promise this year and has already grown massively in the first half of the year

  • UniSwap

The growth of the DeFi space has seen coins like UniSwap come into the conversation this year. 

#7 Price volatility & manipulation

One of the major reasons that cryptocurrencies have become so popular with traders is because of their high volatility. However, high volatility is inherently more risky for traders as the price can go down as quickly as it goes up.

More so, in the cryptocurrency markets, especially with the smaller coins there is the threat of price manipulation. Inherent with trading smaller coins comes the threat of price manipulation where people will actively try to raise — or lower — the price of a token in order to suit their own needs.

How to Profit from Volatility 

Volatility is of course something to  be aware of, but not something to fear if used to your advantage. Using the volatility of cryptocurrency markets means there are good opportunities to make quick profits. 

Investing in coins that are growing quickly can increase your gains significantly, but using downward volatility is another tool that can make you money if you use a trading platform that allows for shorting and margin trading. 

#8 Picking the Wrong Trading Strategy

Trading has often been described as a battle between the head and the heart, but for serious traders, it should always be the head that wins. For most, this means having a good trading strategy and sticking to it.

Cryptocurrency trading is also a different beast and it requires some different tactics for those who are more used to other types of trading. And therefore, it is really important to pick the right strategy.

People Who pick the wrong strategy will quickly learn if it is not working — and it could be that that it is simply a strategy that is not right for them, or not right at a certain time

How to choose a trading strategy? 

There are a lot of trading strategies that people can learn and adopt when trading their cryptocurrencies. The issue is choosing the right strategy, at the right time. Some of the best ways to choose the right strategy is to look at what professionals are doing at the time, and to do a lot of research. 

#9 Making common beginners mistakes 

A list of five common beginner mistakes include: 

  • Failing to create a trading plan.
  • Listening to others.
  • Making a bad situation worse.
  • Risking too much on one trade.
  • The fear of missing out.

How to avoid them 

A lot of trading errors from rookies come from a lack of experience — such as the fear of missing out and failing to create a trading plan. To rectify this takes a lot of practice and perseverance. 

Making a bad situation worse and risking too much on one trade comes from trading with the heart and not thinking too logically where as listening to others is a tricky one to fix as some people can have a lot of good advice. 


Cryptocurrency trading has become a massive industry and there are a lot of reasons to be excited about it. But with this excitement and this new space there comes a lot of risks. Some of these risks are very specific to crypto, and need to be managed. 

By looking carefully at the potential risks of trading, and making them accordingly, it is entirely possible to have a good and profitable experience. 

FAQ: Frequently Asked Questions

Is trading Cryptocurrency safe?

Trading cryptocurrency is entirely safe, however, there are risks that are inherent in the space, as well as typical trading risks. It is about managing those risks and being smart about them

Is trading Cryptocurrency profitable?

One of the reasons for the boom in cryptocurrency trading is the level of profitability for some traders. But, again, it is the volatility that brings profit, as well as added risks.

Can you lose money in Cryptocurrency?

Just like with any trading situation ,there is a risk where you can lose money. It is about being smart with how you trade to mitigate these risks.

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Disclaimer: The information provided does not constitute, in any way, a solicitation or inducement to buy or sell any of our products.
Any material presented under this section of our website is not intended and should not be considered investment research or investment advice. Any Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time. The recipient acknowledges that he/she is solely responsible for any trading decisions taken.

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