By Dáire Ferguson, CEO at AvaTrade
Deciding where and how to invest money can be a complicated process. What do you do if you are willing to take a risk, but you’re not willing to lose everything at a moment’s notice? What sort of investment would be most worthwhile for a person like this?
For these types of people, investing in stocks can offer a worthwhile option.
Stocks offer potential for explosive growth
When people think about investing in a market with the potential for explosive growth, cryptocurrencies usually spring to mind. Evidence of this can be seen with Bitcoin and Ethereum, two cryptocurrencies that have grown astronomically in recent years. For example, Ethereum has seen its price increase by more than 500 per cent in 2021 alone, while five years ago a single Bitcoin could be purchased for around US$500. Now, one Bitcoin costs over US$58,000, representing growth of about 11,500 per cent.
Nevertheless, stocks, just like crypto, also have the potential for rapid growth. An example of this can be seen following the outbreak of Covid-19 in March 2020, which caused countries around the world to go into national lockdowns. This resulted in Zoom quickly becoming a household name as businesses and individuals wished to communicate with their families, friends, and colleagues as they were forced to spend their time at home. With the demand for video calling remaining high throughout 2020, shares in Zoom peaked at around US$560. This is a remarkable price jump from around US$110 per share at the beginning of March 2020, prior to the pandemic, and an increase of nearly 15 times over from US$36 in March 2019, when the company first filed to go public.
The video conferencing application is just one of numerous stocks to have had a remarkable price increase that wouldn’t look out of place in the cryptocurrency market. Throughout 2021, other companies have fared well, most notably the electric vehicle manufacturer Tesla, which is up over US$400 since the start of the calendar year, from around US$730 to US$1,116 at the time of writing. Businesses such as Amazon, Groupon and Nike have also had a strong 2021 to date, which will have been pleasing for investors who capitalised on the opportunity presented to them when stock prices were much lower, in the early days of the Covid-19 pandemic.
However, the key difference between the two is that stocks carry far less risk than crypto. With stocks, investors are better protected against downside risks, which makes them a comparatively safer investment. This is not the case with cryptocurrencies. As an example, while the current value of one Bitcoin is huge (due to high demand and speculation of further price rises), its inherent value is zero. If confidence drops in the coin or a regulatory barrier is created that deters users, any investment could quickly go up in smoke. It is this paradox that makes cryptocurrencies subject not only to rapid rises, but also rapid falls in price.
Once crypto gains more popularity and becomes more widely accepted, investors will begin to gain a greater understanding of what factors influence the market and prices (though at this stage, the volatility – and therefore the potential gains – may also be significantly reduced). Nevertheless, at this current moment, cryptocurrencies, for all their upside, come with considerable risks – even by the standards of investing, which is an inherently risk-based exercise. For many retail investors, a diversified range of stocks offers plenty of scope for significant growth, but with far less risk attached.
Protection against losses
When it comes to investing in stocks, although not yet widely available across the retail market, some brokers offer risk management tools that can offer further protection against potential risk. Slowly but surely, risk management tools are becoming more common, being offered to traders as an extra layer of security for those wishing to engage in high-risk trading.
Investors have a range of options at their disposal. One common tool is a ‘take profit’ order together with a ‘stop loss’ order. Simply put, a take profit order is a limit order which specifies the exact price for investors to close out an open position in order to make a profit. In the case that the price of the security fails to reach the set limit price, the take profit order will not take place. On the other hand, a stop loss order can be used to reduce the amount of money a trader loses on a security position. This is done through either the buying or selling of a stock once it reaches a certain price.
Take profit and stop loss orders help to reduce potential risk, but for those new to trading or who desire extra support, there are risk management tools available that provide thorough protection against losses for a set period, For example, at AvaTrade, where we offer users Contract for Differences (CFDs) which can go up or down, giving them the opportunity to benefit in a rising or dropping market, we have AvaProtect. This means that if the market happens to move in a different direction to that which was originally predicted, AvaTrade users can recover their losses – minus the cost of purchasing the protection.
As an increasing number of people take an interest and begin using trading platforms to invest in stocks, brokers will certainly look to develop or grow the risk management tools they offer in an attempt to gain and retain new users.
The Evolution and Challenges of Crypto Regulation
Cryptocurrency regulations are evolving quickly around the globe with authorities responding to developing risks professed by criminals exploiting the latest payment methods to mask and launder the profits from their crimes.
According to William Je Founder & CEO, Hamilton Investment Management Ltd, this has warranted the introduction of a more stringent level of due diligence by additional bodies to introduce preventative measures.
William Je Founder & CEO, Hamilton Investment Management Ltd explains: “The past ten years has seen several structural changes in Know Your Customer (KYC) and anti-money laundering (AML) regulations in both Europe and across the world. High-profile money laundering cases and the penetration of illegal monies into global markets have caught the attention of regulators.
“As regulators improve their understanding of these criminal practices, AML requirements have also been improved. However, these improvements have been a reactive process.”
To address the challenges of the blockchain ecosystem, the European Union has started to introduce financial regulations that further bolster the regulatory system in order to improve licensing models. Many member states are regulating crypto assets individually, and Germany is leading the way in being the first to regulate.
Je continues: “These national driven regulations clearly point to a future pathway for crypto companies, outlining the requirements for obtaining and maintaining a financial license from the regulator.
“Compliance, however, is to my mind essential as it not only boosts investor confidence but adds a necessary layer of protection to investors.”
As crypto evolves, so have regulatory bodies’ efforts to monitor, address and enforce restrictions. The most prominent is the Financial Action Task Force (FATF), which details guidance and determines best practices in anti-money-laundering practices and combating the financing of terrorism.
FATF Recommendations number 16, better known as the ‘travel rule’, which requires businesses to collect and store the personal data of the originators and the beneficiaries in blockchain transactions, is the most notable.
Je concludes: “What does this mean? In theory, access to this data will enable authorities to have better oversight and enforcement of crypto market regulations. In other words, they’ll know exactly who is doing exactly what.
As we have always argued – transparency is key. We need to regulate crypto as an asset class with efficacy, which necessitates legislation that is applicable specifically to digital assets and does not hinder the market.
The criminal financial trade which arguably encompasses money laundering, illegal weapons sales, human trafficking, is also international. Thus, cracking down on it is, out of necessity, an international effort.
The decentralised nature of blockchain, which runs contrary to the central-server standard we know and use nearly everywhere, presents a formidable challenge here. Rules and regulations for traditional financial institutions are being implemented wholescale into the crypto sector. We believe that this is arguably wrong footed as it ignores the innovation and uniqueness this asset class and its underlying technology entails.
Traditional forms of regulation from the fiat world do not reciprocally apply to every aspect of crypto nor to the fundamental nature of blockchain technology. However well-intentioned they may be, because these imposed regulations are built on an old system, they must be adapted and modified.”
How bug bounty programs can help financial institutions be more secure
Rodolphe Harand, Managing Director at YesWeHack
Financial services have been one of the most heavily targeted industries by cybercriminals for several years. One alarming stat from the Boston Consulting Group found these firms to be 300x as likely as other companies to be targeted by cyberattacks.
Furthermore, the pandemic has led to a significant increase in the number of cyberattacks targeting financial institutions (FIs), with around 74% experiencing a spike in threats linked to COVID-19.
With FIs holding some of the largest collections of sensitive and private data, it’s clear they will remain an attractive target for malicious actors, especially as any data stolen can be used for fraudulent activities. This leads to the reputational damage of the financial entity that was compromised and has a knock-on effect in terms of monetary and reputational damage to affected customers.
For CISOs at FIs, the conundrum faced is how do you protect intellectual and customer data, and ensure accountability and transparency for clients and stakeholders, at a time when the pandemic has created budget constraints. Research from BAE Systems found that last year alone, IT security, cybercrime as well as fraud and risk departments had their budgets cut by a third.
Below we look at how bug bounty programs can help to address these pressing issues.
Protecting valuable data
Protecting customer and intellectual data has always been a top priority for FIs. However, as opportunistic cybercriminals have a lot to gain by stealing this valuable data, there is a constant evolution of threats, which means FIs must stay on their toes. By deploying a bug bounty program, FIs can work with ethical hackers that have a wealth of experience and unique skills when it comes to identifying security weaknesses within a FI’s defence, thus helping to implement effective security measures to help prevent data breaches.
Building trust among various stakeholders such as customers, suppliers and investors is critical for achieving business goals. By deploying a bug bounty program, FIs send out a message that they care about protecting the security of the data of those they work with – which in turn can have a cascading effect resulting in better business performance.
For FIs to win customers and keep them happy, amidst the growing threat of neo banks and customer-centric fintech organisations, speed of innovation is crucial. As such, many FIs have adopted an agile approach to build, test, and release software faster to bring online and mobile banking solutions to market quicker. However, this can create frictions between development and security teams. Security mandates are deemed to be unnecessarily intrusive and a cause of delayed application development and deployment.
Yet, with DevOps teams needing to build and deploy applications faster than ever before, an epidemic of insecure applications has emerged. According to Osterman Research, 81% of developers admit to knowingly releasing vulnerable applications, while research from WhiteSource found 73% of developers are forced to cut corners and sacrifice security over speed.
With developers often not having the time, tools, skills, or motivation to write impeccably secure code, there is an evident need to provide developers with more support when it comes to building applications securely Fortunately, bug bounty programs can provide a “fact-based” financial implication of inherent security flaws within the process. This makes it possible to hold development teams and service providers accountable for creating or delivering insecure products, thus addressing inherent security gaps within the business units and helping to drive continuous improvement.
Moreover, security awareness and education of developments teams can be improved significantly for those developers that are directly involved with the management of vulnerability reports for their bug bounty programs. This is because, the mere fact of exchanging information with ethical hackers, or assimilating the thinking of a potential hacker and having proof of concepts of vulnerability exploitation on their application components, naturally accelerates consideration of security early in the development stage and provides ongoing learning.
Get more return on your investment
According to Gartner, 30% of CISOs effectiveness will be directly measured on their ability to create value for the business. When security budgets are challenged, CISOs need to demonstrate business value through initiatives designed to enhance efficiency whilst stretching the dollar.
This is where bug bounties can help tremendously. Compared to conventional penetration testing, bug bounty offers a fast, complete, and measurable return on your security investment, with businesses only paying out for successful discovery of vulnerabilities. Equally, businesses get access to hundreds of ethical hackers that can test their programs, each with their own unique skillsets as opposed to only one skilled researcher testing the network. This results-driven model ensures you pay for the vulnerabilities that pose a threat to your organisation and not for the time or effort it took to find them.
Bug bounty programs also deliver rapid vulnerability discovery across multiple attack surfaces. With this approach, organisations receive prioritised vulnerabilities and real-time remediation advice throughout the process to accelerate the discovery of, and solution to vulnerabilities.
Another appeal of bug bounties is that due to the continuous nature of testing, more vulnerabilities are found over time as opposed to pen-testing. This is key to financial institutions that require agility to keep up with the continuous roll-out and updates of applications.
The cornerstone to a successful security programme
The risk posed to financial institutions by cyber threats will only continue, as evidenced by the number of data breaches seen in recent times. The COVID-19 pandemic has only exacerbated these risks, especially with almost all FIs having needed to shift to a remote working environment – which has only widened the attack landscape.
For FIs, a bug bounty program should be considered a fundamental cornerstone of any security strategy, with it being a modern-day cybersecurity solution that is well-equipped to tackle the immediate security challenges they face. In doing so, FIs will not only prove to customers and stakeholders their commitment to data protection and security but this will also be help them to avoid the monetary damages that could be imposed by regulators if a breach was to take place.
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