The financial world changed dramatically with the introduction to cryptocurrencies. They are virtual currencies that can be used to trade or purchase stuff online. One of the most popular cryptocurrencies available in the market today is bitcoin and thousands of people have invested a lot in it. Even though you have chances of making a lot of money from crypto trading, this type of currency is extremely volatile. This means that there will be a level of risk involved in the whole process. Read on to learn more about some of the notable risks for trading in cryptocurrencies.
Easily Affected by Gapping
You can expect your trading process and cryptocurrencies to be easily affected by gapping. This is because of the volatility levels of the market that can change randomly. The concept of gapping is also known as slippage and it means that the cryptocurrency trade opens with a specific amount that is higher or lower than the previous day, but the difference is that there was no trading activity at all between those days. This is very common to happen when the market is highly volatile. This is one of the risks that you should expect. You might increase your loss chances if the market is not in your favor. Your stop-loss will be a lot worse than you expect thanks to gapping.
Some Auto Trader Platforms Are Not Trustworthy
You will see several auto trader platforms with different software programs that boast about their capabilities. But some traders came out with nothing and got scammed because they didn’t do enough research. You must make sure that you’re doing your trades on a trustworthy auto trader platform. Advice from the cryptocurrency and algorithm traders at insidebitcoins suggests that you ask around, check reviews, and do test runs before you start trading fully on any auto trader platform. You need to be sure that you found one that is trustworthy and safe to use. This will minimize the losses significantly for you. Try to befriend other cryptocurrency traders to know the best platforms that they use because they know it’s safe and trustworthy.
There is a significant level of market risks with cryptocurrency trading. This is because currencies like bitcoin are only traded if the demand is there. There will be levels of liquidity that can make traders concerned for their investment. The cryptocurrency trading process might be affected by market manipulation and that can rig the supply and demand of that specific cryptocurrency. This is a major problem and could lead to losses. You need to be sure that there is a demand for trading in this type of currency before you start your trade. You can’t afford to start trading when people are hoarding the currencies or manipulating the market for their personal gain. These events make cryptocurrencies even more volatile than they already are.
No Protection for Traders
Unfortunately, you will find no protection policies or procedures that can help traders who had a bad deal or got scammed. Bitcoin and other cryptocurrencies have no consumer protection because they are not regulated by the central bank or any other financial institution. Technically, cryptocurrencies are decentralized products that have no physical form. Any financial institution isn’t allowed to assist in any disputes or complaints from traders. This is an unpleasant risk that you have to accept. If you got scammed or you had a failed transaction, nothing can be done to rectify this issue. The only way that you could try and fix this problem is by convincing the other trader to return your money, but the likelihood of that happening is very slim. The fact of having irreversible trades can be quite dangerous and you need to trade at your own risk.
Trading Fees Might Be Too High
Another risk that traders have to deal with is the high trading fees that they might have to pay each trade. This can be a huge problem because you might not make a significant profit after the fees. You should always check the costs and fees of every trade before you accept it. There is a possibility that you might pay charges that are higher than the trade itself. Always make sure that you’ve chosen the right trade deal that suits your tolerance level and doesn’t charge you a large fee.
Sudden Bans or Restrictions
Since cryptocurrencies aren’t regulated or backed up by any official or central authority, you might wake up one day seeing sudden bans in the country. Also, you might have to deal with bank restrictions that prohibit the purchasing or exchange of cryptocurrency using the bank’s credit card. This can be a major problem because you might lose some money if you were in the middle of a trade. The sad part is that you can’t do anything about the sudden bans because they are governmental decisions.
Issues with the IRS
Traders might find themselves in trouble because of issues with the IRS. Most cryptocurrency traders don’t report their earnings to the IRS. This is a huge problem because if you didn’t report it and you made some money from trading, then you might be accused of tax fraud. So many traders believed that they didn’t have to report their earnings, but even cryptocurrency profits are taxable. There is a possibility that you might get investigated by the IRS and that can be quite a hassle to deal with.
The whole trading market has risks and cryptocurrency is still relatively new to a lot of traders. This is why some people don’t understand how currencies like bitcoin work. You should learn how to minimize the chances of losing money on your investment. Familiarizing yourself with every risk involved with this type of trading is key. You can protect yourself if you ever encounter one of the different risks listed above. Overall, this is your choice and if you like trading bitcoin and other cryptocurrencies, then you should do what your heart desires. But it wouldn’t hurt to have the knowledge that can protect you on your trading journey.