1. Hacking
The main risk for any exchange user is a successful hacker attack. Attackers can steal funds stored in the company’s wallets. In this case, she will have nothing to give clients their funds and she is likely to declare bankruptcy. To reduce the risk of losing funds due to hacking, it is safer to choose the largest exchanges. They invest more money in providing protection and create reserve funds in case of an attack. At the same time, the more capital “in one basket”, the greater the temptation for criminals.
2. The disappearance of leaders
Another risk: bad leadership. The founders of the trading platform have access to all funds stored in their wallets. For this reason, staff can simply hide away with users’ money. A similar thing happened in November with the Canadian Einstein Exchange. With large companies, such a scenario is possible, but unlikely. The management of popular exchanges is known to the public. If it goes to such a crime, the authorities are likely to respond promptly. Although the founder of one of the largest financial pyramids, Ruzha Ignatov, has been sought since 2017.
3. Crashes
A less significant but more pressing problem is disruptions. Due to the heavy load on the server, exchanges can operate with delay or even fail. Because of this and because of the delays that have arisen, users can make mistakes in trading. For example, to sell assets at a very low price. Failures usually occur during strong market movements. When Bitcoin drops in price by tens of percent, trading activity increases, this leads to a heavy load on the servers. The exchange can go offline at the most inopportune moment. For example, this happened with BitMEX during the fall in the price of BTC to $ 3800.
4. Manipulation
Another problem of trading platforms is exchange rate manipulation. Traders use stop-losses to avoid significant losses. These orders allow you to sell an asset at a predetermined price if it starts to fall. Big players can use this to their advantage. For example, a player with large capital can sell a significant amount of bitcoins on the market. In this case, the price will fall short-term and stop-losses will be triggered. Users who have sold an asset due to such manipulation will have to buy it back, but probably already more expensive.
5. Laws
Cryptocurrency, even after 10 years of existence, has a controversial legal status. In China, most transactions with digital assets are prohibited, in Russia, they cannot be used for payment. At any time, the legislation may change, and the user will not be able to legally access the exchange. The solution is to keep funds in cold wallets or on decentralized sites. In this case, the user will not lose access to the cryptocurrency if a prohibiting law is passed. But its use is likely to continue to be illegal.
