There is a significant amount of risk involved in the trading of virtual currencies. Due to the f act that virtual currency is a mere digital representation of value that does not have legal tender status and are not backed nor supported by any government or central bank, their value is completely derived by market forces of supply and demand. This means virtual currency lacks any authority that can take corrective measure to protect its value in a crisis or issue more currency. Virtual currencies are subject to more price volatile than traditional fiat currencies, and may even become absolutely worthless. There is an inherent risk that losses will occur as a result of buying, selling, or trading of virtual currencies.
Trading virtual currencies comes with a number of risks.
- Virtual currencies are not supervised by a government agency;
- Virtual currency exchanges/broker may lack critical system safeguards, including customer protections;
- Extreme price swings or flash crashes;
- Margin trading can amplify the of price volatility;
- Price manipulation;
- susceptible to irrational/rational bubbles or absolute loss of confidence, which could collapse demand/supply.
- Cyber risks, such as hacking customer wallets.