Tuesday, 22 June 2021

What are the risks associated with trading crypto currencies?

 As we all know the craze of crypto currencies in trading market is at its top. Though they are currently deliver a lot of benefits to its traders and one of the crypto currency namely Bitcoin has made its users even millionaire. But do you know, along with all these advantages, there are key risks are associated with the trading of crypto currencies.

Here in this guide, we will discuss on the risks associated with the trading of crypto currencies. So let’s get started.

Risks associated with the crypto currency trading

The main risk associated with the trading of crypto currency is mainly related to its volatility. Though the crypto currencies are highly profit generative but the fact that it is high risk investment can not be ignored. This investment is subjected to very high risk and there is need that all the investors before planning to invest in crypto currencies should understand the risks associated with the crypto currency trading.

Below we are listing some highly vulnerable risks that are associated with the trading of crypto currency:

Volatility: As mentioned the major risk associated with the trading of crypto currency is its volatility. For investors, it is almost impossible to detect the unexpected change in the market and this sudden change in the market often leads to the sudden and sharp moves in the price of the crypto currency. Also, the case when the price of crypto currency suddenly drop by thousands of dollars is also very common and such sudden changes can lead to the loss of thousands of dollars.

Unregulated: Another risk associated with the trading of crypto currency is its unregulated status. Currently, the crypto currencies are unregulated by both the central banks and the government and thus are more vulnerable. Though the crypto currency like bitcoin has delivered very high profit to the market and even attracted many of the investors but the  fact that it is high risk investment cannot be ignored. Also, the question whether to consider the crypto currency as a vital currency or the commodity is still not answered.

Their susceptibility to hacking and errors: Where ever there is involvement of technology, the risk of hackers and cyber crime can not be neglected. Since, the system of crypto currency is totally technology based, than it is hard to trust that it is completely safe from the hackers and bugs.

Crypto currencies are more affected by discontinuation and forks: The trading of crypto currency also carries an additional risk of discontinuation and hard fork. When ever there is occurrence of hard fork, the price of the crypto currency battles with the high volatility around the event. Thus the investor might need to stop the trading process before they get the reliable price for the crypto currency from the underlying market.

All the investors before investing in crypto currencies should be careful for the above mentioned risks that are highly associated with the trading of crypto currencies.               

Risks associated with the spread bets and CFDs of crypto currency

CMC is a market where the investors get the option to trade for bitcoin and other crypto currencies like ethereum utilizing the CFD account or spread bet. While trading on this platform, the investor will be exposed to different kind of risks> These are:

Crypto currencies are high risk speculative currencies: With the help of CFD account or spread bet, the investor will need to deposit certain percentage of the value o a trade in order to open apposition. The profit and loss associated with the trading completely depends on the full value of the trade. Since, the crypto currencies are volatile, its volatility along with the trading on margin, the investors are exposed to high risk of significant losses.

Gapping can also affect the trading of crypto currencies: AS mentioned that the market of the crypto currencies are highly volatile and thus their prices can jump from one level to another level with passing through any in between level. During the period of high volatility, the chances of gapping (That can be slippage) increases even more and can lead to significant loss. There are chances that the stop-loss of the trader can be executed at the worst of its level. This condition can even worsens when the market is also against the movement of the trader.

The charges of the crypto currencies can be more than that of other assets: Before investing in crypto currency, the trader need to review the costs involved thoroughly. The charges for the trading of crypto currency may increase when the trader trade on crypto currency via spread betting or using the CFD account. There is need that the investor before making any movement should consider the expected profit in comparison to the fess or the cost of the trading.    

Pricing variations: In comparison to other crypto currencies, the price of particular crypto currency can be more or there can be significant variation in between the pricing of the different crypto currencies.

Other risks associated with crypto currencies:

Illiquid, intangible, and uninsured: By solving the issue of intermediaries are solved with the block chain based technology, crypto currency showed really a true miracle. But the illiquid and intangible nature of the crypto currency hampers their insurability and the convertibility. Also, the majority of the crypto products including the crypto currencies are either under insured or uninsured and this increase the risks associated with it.

Wide entrance and narrow exit: It is true that many people are attracted to invest in crypto currencies and the platform also provides wide entrance to the investors to invest in crypto currencies. But the technology constrains barred its exit because of the inconvertible nature of the crypto currency.

The bottom line

All the investors before making any movement to invest in crypto currencies should understand all the risks associated with the crypto currencies and its trading. Invest with care and be sure only when you are having good experience and sophisticated knowledge in crypto product trading.    

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