Everything You Need to Know When Using a Digital Currency Exchange

The
crypto
market
is
currently
in
another
bull
cycle.





Bitcoin
recently
hit
an
all-time
high
price
of
$73,800.
There
are
also
hundreds
of
meme
coins
booming
and
busting
in
quick
succession.
Of
course,
you
very
likely
already
know
this.
And
this
is
a
testament
to
how
much
cryptocurrencies
have
permeated
society
and
changed
how
we
perceive
and
manage
financial
assets.

Much
of
this
has
been
made
possible
by
digital
currency
exchanges
that
provide
platforms
for
billions
of
people
worldwide
to
trade
and
invest
in
cryptocurrencies—at
transaction
speeds
that
even
the
traditional
financial
system
is
still
only
catching
up
to.
Here’s
an
example
of
such
an
exchange: https://www.independentreserve.com/au.

 

However,
as
it
is
with
any
financial
venture,
these
exchanges
come
with
a
unique
set
of
risks
and
challenges.
For
anyone
looking
to
navigate
the
crypto
market,
and
hopefully
participate
in
the
bull
season,
it
is
crucial
to
understand
these
intricacies.

Why
are
Digital
Currency
Exchanges
Necessary?

Crypto
exchanges
act
as
intermediaries
and
facilitate
the
trade
of
digital
assets
like
Bitcoin
and
other
cryptocurrencies.
They
provide
a
structured
marketplace
that
is
usually
intuitive
enough
to
be
navigated
by
both
seasoned
traders
and
newcomers
alike.

 

Additionally,
these
also
typically
offer
analytical
tools,
and
real-time
market
data
and
sometimes
even
help
provide
educational
resources
to
assist
users
in
making
informed
decisions
in
trading
their
cryptocurrencies.

What
Are
These
Risks
And
Challenges?

However,
the
purpose
of
this
article
is
to
get
into
the
risks
and
challenges
that
are
associated
with
these
exchanges.
So,
let
us
get
into
them:

1. The
Markets
are
Quite
Volatile

Volatility
risk
is
not
exactly
directly
tied
to
crypto
exchanges.
However,
it
bears
mentioning,
as
these
exchanges
are
the
main
arenas
where
crypto
transactions
take
place.
These
fluctuations
typically
occur
in
mere
seconds,
leading
to
either
high
gains
or
heavy
losses.
This
volatility
is
usually
caused
by
a
variety
of
factors
including
announcements
from
regulatory
bodies
or
government
leaders
or
random
shifts
in
market
sentiments.

 

As
an
investor,
you
need
to
learn
how
to
navigate
these
turbulent
waters
with
the
care
of
an
expert
captain;
developing
a
system
that
allows
you
to
make
quick
movements
in
your
portfolio,
in
adapting
to
market
changes.
Essentially,
the
markets
are
unpredictable,
so
you
have
to
keep
your
ear
to
the
ground.
To
do
this,
you
need
to
switch
on
news
alerts
for
the
keywords
that
are
often
included
in
the
news
headlines
that
typically
move
the
markets. 

 

Many
crypto
exchanges
come
with
features
like
this
that
alert
you
to
market-moving
events;
so
it
may
be
wise
to
consider
that
as
a
factor
in
selecting
which
exchange
to
use.
However,
you
also
need
to
develop
your
independent
systems
for
monitoring
these
trends.

2. There
are
Legal
and
Regulatory
Risks

Another
area
with
a
lot
of
risks
is
the
legal
and
regulatory
aspects
of
things.
The
crypto
market
is
relatively
new,
and
hence
the
legal
frameworks
are
largely
nascent
and
evolving
or
even
non-existent.
From
countries
like
el-Salvador
where
crypto
adoption
is
encouraged
by
the
government
to
countries
like
China,
where
it
is
permanently
banned;
regulatory
attitudes
vary
widely.
And
sometimes,
even
within
the
same
country,
attitudes
can
shift,
depending
on
internal
political
cycles.

 

This
inconsistency
can
make
compliance
a
complex
affair.
For
example,
in
Nigeria,





Binance
suddenly
got
banned
by
the
government,
even
after
several
government
figures
had
indicated
an
interest
in
encouraging
the
growth
of
crypto
in
the
country.
This
inconsistency
also
introduces
a
layer
of
uncertainty
that
can
influence
market
behavior
and
price
movement.

 

So,
as
an
investor,
it
is
quite
important
that
you
also
keep
an
eye
out
for
regulatory
changes
in
the
jurisdiction
that
you
operate
in.
But,
it
is
even
more
imperative
that
you
find
measures
to
insulate
yourself
and
your
assets
from
the
reach
of
the
regulatory
agencies
in
your
country.

3. There
are
Always
Security
Concerns

As
it
is
with
anything
else
in
this
digital
era,
the
threat
of
security
breaches
looms
large
over
crypto
exchanges.
While
most
exchanges
typically
have
an
array
of
innovative
protective
measures,
hackers
and
their
tactics
are
also
always
evolving
and
getting
more
sophisticated.

 

Unfortunately,
the
consequences
of
one
successful
breach
are
usually
enough
to
cause
significant
damage
to
both
exchanges
and
individual
investors;
and
make
insignificant
the
efforts
of
the
security
systems
in
place
in
stopping
a
thousand
earlier
threats.

 

Anyway,
it
is
important
for
you
as
an
investor
to
research
the
security
measures
employed
by
the
various
exchanges
before
choosing
one.
We
have
said
that
security
threats
are
ever-evolving,
but
it
is
still
always
best
to
be
on
the
side
that
is
always
on
top
of
its
game
when
it
comes
to
security.
You
want
to
look
out
for
encryption
protocols,
cold
storage
solutions,
and
rigorous
security
audits.

 

However,
the
role
of
personal
vigilance
cannot
be
overemphasized.
While
it
is
great
to
trade
with
an
exchange
with
cutting-edge
security
measures,
you
can
also
personally
deploy
strategies
like
using
complex,
unique
passwords
and
employing
two-factor
authentication.

4. Liquidity
is
Paramount

This
is
particularly
important
if
you’re
one
of
those
who
like
to
take
advantage
of
meme
coins
that
can
see
growths
in
thousands
of
percentages.
Whether
your
coin
gains
180%
or
18,000%,
it
only
matters
if
there
are
enough
other
traders
in
the
market
who
are
willing
to
buy
it
from
you
in
exchange
for
other
crypto
coins
or
fiat.
That
is
what
liquidity
is
—
your
avenue
to
exit
and
take
profit
from
a
trade.

 

Exchanges
that
have
low
liquidity
may
expose
you
to
the
risk
of
slippage,
which
is
when
the
final
executed
price
of
a
trade
diverges
significantly
from
the
expected
price
at
the
time
the
order
was
placed.
These
discrepancies
can
erode
trading
margins,
and
impact
your
profitability.
So,
you
need
to
opt
for
exchanges
that
are
known
for
substantial
trading
volumes
to
mitigate
against
possible
liquidity
problems.

Why
you
need
Diversification
to
Mitigate
Risks

There
are
many
strategies
that
you
can
employ
to
mitigate
risks,
but
like
anyone
will
tell
you,
your
top
option
is
to
diversify
your
holdings.
Diversification
can
take
varying
forms.
It
can
mean
holding
a
varied
range
of
cryptocurrencies
across
the
industry—rather
than
focusing
on
only
one
token,
as
a
way
to
shield
yourself
from
the
extreme
volatility
of
the
markets.
It
can
also
mean
holding
your
assets
in
a
variety
of
wallets
and
other
storage
options,
to
protect
them
from
cyber-attacks.

 

Either
way,
diversification
enables
the
spreading
of
potential
risks,
ensuring
that
the
impact
of
one
negative
event
does
not
necessarily
wipe
out
your
portfolio.

Conclusion

The
global
crypto
markets
are
very
volatile
and
can
be
fraught
with
a
lot
of
security
threats
and
other
dangerous
problems.
However,
it
has
also
emerged
as
the
greatest
financial
invention
of
the
current
century;
as
it
has
made
more
millionaires
than
any
system
before
it.

 

However,
it
is
always
important
for
you
as
an
investor
to
keep
an
eye
on
the
market,
and
to
arm
yourself
with
the
knowledge
of
various
strategies
to
protect
yourself
from
the
pitfalls
that
abound
in
the
ecosystem.

 

Do
your
own
research,
thoroughly,
remain
adaptable,
and
practice
enhanced
cybersecurity
measures.

Image
source:
Shutterstock