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3 trading "traps" that any investor should be aware of

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Avatar for pandoru1997
Written by   18
9 months ago

Exchanges that do not allow withdrawal of cryptocurrencies

In order to trade you need to have cryptocurrencies stored in an exchange, however, you should not have all your capital in this type of account for security reasons.

Why? Exchanges can be victims of hacks or not allow users to withdraw money because their operations are not very transparent.

For this reason, it is recommended to acquire a cold wallet, technological devices that provide security to the software that supports the operations and storage of cryptocurrencies.

Unlike exchanges, cold wallets do not need to be connected to the internet, therefore, they work as unhackable security vaults.

What is the difference between a cold wallet and an Exchange? The latter does not allow offline operations and transactions, i.e. it always needs connectivity to a network to exchange cryptocurrencies.

The two most popular brands are Ledger and Trezor and you have to buy them through their official site, because if they are purchased through e-commerce, they may have been altered by the seller to drain the funds.

Ponzis and pyramid schemes

In the midst of the cryptocurrency boom, fraudulent companies have emerged that claim to be dedicated to trading and offer derisory returns of 5% per month, which are too good to be true.

These are usually unknown firms, of dubious origin, which usually do not provide all the information necessary to understand how their services work.

For example, some fraudulent firms offer bots that give sky-high profits or infallible algorithm trading software, but in no case do they give details about how they actually work.

On the other hand, the main marketing channel of these companies is word of mouth, since, as in any ponzi scheme, investors must invite other people to move up to the next level and thus gain access to higher profits.

Once you have invited the required number of people, you will be able to access a product at an incredible price or exponential profit. The reward for bringing new people into the system is always greater than the reward generated by the main activity, so the incentive is always in recruiting, not in selling products or services.

What's the catch? New members are needed all the time so as not to be on the side of the scammed. Thus, every time you move up a level, other people are left "floating'' waiting to move up to the top level themselves.

However, when the base of the pyramid is too large because each new entry in turn generates other new entries to the program, the chain breaks and 99% of the participants are left out of the profit scheme and lose all their investment.

In this context, it is necessary to be attentive to this type of scams and it is advisable to carry out a thorough investigation before making a monetary movement with these characteristics.

In this context, it is necessary to be attentive to this type of scams and it is advisable to carry out an exhaustive investigation before making a monetary movement with these characteristics.

Learning when to buy and when to sell

"How do I know when to buy and how much to sell? And how do I know which cryptocurrency is worthwhile?" people who are just getting into trading ask.

Along these lines, there are two indicators that can be analyzed to know whether a cryptocurrency will rise or fall in price over the long term: market capitalization and trading volume.

It is possible to follow these two figures through platforms such as Coinmarketcap.

On the other hand, when doing fundamental analysis of, for example, a traditional company, investors can learn about the purpose, have more information about the business model and the mission behind the firm.

In cryptocurrencies, there is something similar: each of the projects has a foundational statement behind it, a kind of "roadmap" that details who created the cryptocurrency, who invested in the project, what the value proposition is, who audits the blockchain blocks (which are public), in which digital exchanges they are listed, among other variables.

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9 months ago
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Comments

I feel like nowadays almost every project is a scam or only focused on 'making money fast'.. Reliable projects will determine the future of cryptocurrency.

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