Trading of any kind can be a minefield to the uninitiated, take the time to learn the common safety pitfalls and how best to avoid them
Like many new technologies, the price of cryptocurrencies is highly volatile at present. Investors can win, or lose, a large amount of money in a short amount of time, simply because of changes in the value of currencies like Ripple, Ethereum and bitcoin.
As well as market volatility, there are other dangers for crypto investors – but many can be avoided with a bit of common sense. Good online security, background research and a healthy dose of scepticism will help make sure your cryptocurrency investment is as safe as possible, and that you don’t fall prey to any of the fraudsters taking advantage of the current boom.
1 Don’t put all your eggs in one crypto basket
Whether you’re investing in stocks and shares, gold or Ethereum, diversification should always be the name of the game. Crypto investors betting on the next big thing should be mindful that not all currencies make it, so it is sensible to have fingers in several pies. In addition to this, ensure that cryptocurrency investments aren’t the only place you stash your cash. As part of a diversified portfolio of different assets, digital currencies can be a viable part of a financial strategy.
2 Keep your computer and your data safe
As many cryptocurrency investors know to their cost, your cryptocurrency investments can be vulnerable to hackers. Keep your anti-virus software up-to-date and ensure you aren’t giving out your data online if you are storing or investing in cryptocurrencies. It’s all too easy for your precious investment to be stolen otherwise.
digital style keys
Lockdown: learn the many ways to keep yourself safe online Credit: Getty
If you’re storing cryptocurrency, ensure you have a number of wallets to store it in, and keep the wallets offline if possible. A simple physical device such as a USB drive can be helpful here.
3 Do your research before investing in ICOs
ICOs, or Initial Coin Offerings, have become a popular way for cryptocurrencies to raise funds from the public. However, they have also become an easy way to prey on the vulnerable, and the financial regulator recently warned customers about what it calls “these very high risk, speculative investments”. It warns that there’s little consumer protection and high potential for fraud, as well as high volatility. Some ICOs are regulated by the FCA, but this is on a case-by-case basis, depending on how they are structured.
“”Ensure you understand the leverage of your investments and whether you could end up losing more than you invested””
As the FCA says, you should fully research any ICO before handing over your money. “You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself,” a spokesman says. Alternatively, consider investing or trading with a regulated provider.
4 Become immune to FOMO
When it comes to the cryptocurrency boom, FOMO (fear of missing out) is one of the biggest dangers. But just because your neighbour or friend made money on a certain cryptocurrency doesn’t mean you will. Often the point at which everyone is talking about a certain investment is the point when it is too late to jump in. FOMO is no substitute for proper research, sensible assessment of loss potential and an understanding of what you are investing in.
5 Understand leverage
If you are investing in cryptocurrencies through a contract for difference (CFD) or spread bet (FSB) both your losses and your gains could be magnified by leverage. Ensure you understand the leverage of your investments and whether you could end up losing more than you invested in the first place. Be sure to trade with a firm offering CFDs that is regulated by the FCA.
Digital money decoded
Cryptocurrencies are no longer the inaccessible trading grounds of tech-insiders, offering real investment possibilities to real people.
For 30 years, City Index customers have enjoyed fast, reliable trading and actionable ideas alongside access to a wealth of research. Today, cryptocurrency forms a major part of their portfolio as experts in trading, spread betting and managing risk effectively.
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