RISKS & SCAMS

How to Manage Crypto Trading Risks

Managing trading risk is an important aspect of investing in crypto. Whether you’re building for the long-term or actively trading in the short-term, knowing how to ensure safe & successful transactions is key.

For those of you that are looking for a lesson on how to avoid Crypto scams, check out our “How to Avoid Crypto Scams” lesson here.

Here’s how to manage Crypto trading risks.

Incorrect Blockchain / Address

Even outside of scams, trading itself carries risks that beginners often underestimate. A simple mistake such as sending funds on the wrong blockchain can result in permanent loss. Likewise, mistyping a wallet address or copying the wrong string is enough to lose funds forever. The best practice is to always copy and paste sending addresses, never typing them manually. Alternatively if direct copying isn’t an option, ensure you re-read the full transaction address thoroughly before completing the transaction. Learn the best way to transfer cryptocurrency from one wallet to another here.

Lack of 2FA on Exchanges & Wallets

Many people still fail to secure their exchange accounts with Two-Factor Authentication (2FA), leaving themselves vulnerable to hackers who only need a password leak to get in. Despite popular selection, many people who do consider themselves using 2FA do so by using an SMS-based 2FA, which can be bypassed with SIM swap attacks. Alternatively, adopting the simple practice of using an authenticator app such as Google Authenticator can strengthen protection greatly. Ensure that 2FA is set up for both the login stage, & the transaction confirmation stage.

Trading on Unsecured Wi-Fi

Using public Wi-Fi is already a risky endeavour. Including the element of trading on that unsecured public Wi-Fi network opens the door to man-in-the-middle attacks, where attackers intercept your data in transit. The rule of thumb is to only trade on trusted networks, and when possible, use a VPN for an added layer of protection.

Overexposure & Leverage

One of the greatest trading risks of all isn’t scams or hacks… it’s your own trading psychology.

Over-leveraging, going all-in on a single trade, or risking more than you can afford to lose is a guaranteed way to get liquidated. Many traders who survive the technical threats still destroy their portfolios through greed and lack of discipline. Risk management is a security practice in itself. Following a strong rule such as never risking more than 5-10% of your portfolio on a single trade. This percentage can vary depending on investor experience.

We go into detail about the psycology of a successful day trader and investor here.

Not running a test transaction first.

Most people assume they’ve got all the details correct when sending large sums of crypto across wallets. So for those who it turns out got something wrong in the process, in most cases their crypto is lost forever. Whether it’s due to incorrect blockchain selection, error in sending address, or simply a mistake in crypto quantity, at some point in your crypto journey you’ll make a mistake that can be easily rectified before the damage is done. The best practice you can adopt is running a test transaction before sending the full amount to your desired address. If you’re preparing to send $30,000 across wallets, first run a transaction for $50 to ensure the details are correct.

Not investing in something you don't understand.

While it might sound obvious enough, many investors find themselves falling down a rabbit hole of throwing funds into random Memecoin projects ‘ in case they 1000x in value’. Whilst this approach to Crypto trading nearly always ends in a complete loss of funds, the other risk that nobody tells you about is the exposure your wallet undergoes when linking it to a small-scale token. In simple terms, when you purchase a token, your wallet address is forever associated with the project via the blockchain. Whilst your personal details are never at risk, your entire trading history & financial holdings are publicly visible for anybody to see. This puts your wallet in a position to be targeted by nefarious attacks through airdrops, where a random token is airdropped into your wallet address. The risk here is that if you were to interact with that token; eg: attempt to sell the token for financial gain, your wallet could be connected to a scam application where your funds can be drained.

The best way to protect your wallet from an event like this is to simply ignore all random tokens that appear in your wallet account. It’s not uncommon for wallets (warm wallets especially) to have 1000s of random token projects appear in their wallet holdings. As long as the user doesn’t interact with any projects they don’t recognise, they will never be at risk.

Now that you know everything about how to manage Crypto trading risks, it’s time to move on to our next lesson category, “Exchanges & Trading”.