As the name suggests, Cryptocurrency trading is the buying and selling of cryptocurrencies. In this regard, it is very similar to trading in stocks or commodities where prices are determined by supply and demand on a given exchange platform.
There are different types of cryptocurrency exchanges, including:
- Trading Platforms,
- P2P Exchanges or
- Direct Trading Sites.
Trading cryptocurrencies comes with many risks that you should consider. Aside from being new and relatively unregulated, returns can be unpredictable and high-risk.
Regulations are hazy
While the UAE government seems to have taken a laissez-faire attitude towards cryptocurrencies, Dubai’s international business position means that laws and regulations may change at any time. It is particularly true in light of the recent imposition of harsh new sanctions on Qatar by neighbouring countries, including Saudi Arabia, Egypt, and Bahrain, which has increased tension.
The UAE Central Bank has discouraged banks from dealing with cryptocurrency exchanges until adequate regulation around them can be put in place. However, this stance may well change as cryptocurrency becomes more mainstream.
As an investment asset class, cryptocurrencies are very high risk. Volatility can range dramatically over short periods depending on market sentiment and government regulation.
At present, there is very little underlying price support in cryptocurrencies. They are subject to extreme volatility, which could easily result in significant losses for even seasoned investors.
Hackers and phishing
Hackers and cyber-criminals often target forex crypto markets that use increasingly sophisticated methods to steal cryptocurrencies from unsuspecting traders. These can range from well-timed “pump and dump” schemes to phishing attacks where links or attachments contain software that can harm your computer or be used to gain access to your login details.
Cryptocurrencies trade on global exchanges worldwide, which means there is a high level of competition between trading platforms. It has led some less-than-reputable companies to take advantage of the popularity and lack of regulation in this area.
Some cryptocurrency trading platforms have been known to engage in pump and dump schemes, using insider knowledge of an impending price rise or product launch to increase their activity on a given platform before dumping it onto unsuspecting traders at a much higher price.
Loss of capital
Due to the unregulated nature of cryptocurrencies, there is nothing stopping exchanges from cancelling transactions if they are detected fraudulent. Trading platforms do not always guarantee refunds in cases where you have lost money.
There have also been reports that some shady trading platforms withhold customers’ original funds deposited into their accounts rather than transferring them back when requested. It has even been reported that some trading platforms have shut down overnight, taking all their customers’ money.
There is no guarantee of getting rich
Cryptocurrencies are not guaranteed to make you rich overnight, which means that anyone considering buying virtual currencies should be aware that they may lose it all. The truth is that even seasoned investors continue to struggle with consistently making profits, although some people do get fortunate and win big!
Some trading platform operators are anonymous
To register for many cryptocurrency trading platforms, you need to provide details, including your name and contact information. It increases security by allowing exchanges to identify suspicious activity, but other sites ask for far less information despite operating over-the-counter trades between two parties.
Some trading platforms are run by anonymous owners, which means that if anything goes wrong, there is very little you can do. This lack of accountability has led to stories of unhappy customers who have lost large sums of money due to poor trading practices or platform malfunctions.
Trading cryptocurrencies in Dubai without a license is illegal
Virtual currencies are still relatively new, and as such, their status under local law remains unclear. However, we know that the Central Bank has instructed banks not to deal with cryptocurrency exchanges until an adequate legal framework for dealing with virtual currencies can be created.
Anyone caught trading cryptocurrencies without licenses could face criminal charges and see their funds frozen or confiscated by authorities. If you plan on investing in virtual currencies, it is imperative that you only do so through an exchange with the necessary licenses.