Modern trading platforms must protect customers from the ever-present risks of losing sensitive data and funds. Platform safety involves a security-first culture and deploying various tools to ensure traders’ safety when trading. Here are the main features modern trading platforms are utilizing.
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Security and Modern Trading Platforms
The number of traders and investors engaged in forex trading and other financial markets has increased steadily over the last decade. Security is critical as new and experienced traders aim to improve their portfolios while protecting their data and funds from malicious users.
In its 2023 Internet Crime Report, the Federal Bureau of Investigation (FBI) noted that American businesses and consumers lost $12.5 billion to internet fraud in 2023 and that investment scams increased significantly. The sensitive nature of investment and finance-related activities means brokers and financial services providers must prioritize security on all fronts. Here are some measures that financial services companies use to maintain security.
Deposit Insurance
Although it is not a universal requirement for trading platforms, brokers often offer deposit insurance up to a maximum amount to assure traders of safety when trading. Deposit insurance is capped and subject to terms and conditions based on the location.
Cold Storage and Fund Segregation
Cold Storage is popular in the crypto market. It involves storing digital assets such as cryptocurrencies on hardware wallets and data on physical drives in temperature-regulated storage centers. Brokers also segregate traders’ deposits from running funds to enhance security and prevent undue losses.
Data Encryption
End-to-end data encryption has become a standard in many industries, especially finance. In many jurisdictions, data encryption is a standard requirement for gaining an operational license. This ensures that data generated and sent by the user is decrypted by the intended recipient, thus preventing unauthorized access to sensitive data. Trading platforms implement data encryption for two-way communication using SSL/TLS protocols. They also encrypt data, such as transaction history and user information stored on their servers and regularly update encryption protocols to the latest standards.
DDoS Protection
In its Q3 2024 DDoS threat report, Cloudflare noted a 49% increase in DDoS attacks QoQ and that the banking and financial services sector received the most attacks. DDoS protection ensures the stability of trading platforms against attacks and the resultant downtimes. Cloud-based security is best for modern platforms. Other measures include setting rate limits and filtering traffic to prevent potential attacks.
Two-factor Authentication (2FA)
2FA is a verification measure where users must provide two authentication factors to gain access. 2FA is popularly used for most online platforms and is simple to implement. The process typically uses third-party platforms like Google Authenticator to provide keys and SMS and email to deliver keys. 2FA ensures that users can prevent unauthorized access if one factor is compromised. The flexibility of 2FA makes it a cost-effective measure for implementing client-side security.
Secure API Integrations
Trading platforms rely on APIs for data aggregation, authentication, and verification; hence, the industry needs to implement the best standards for API integration. Using OAuth 2.0 for secure API, setting a rate limit, and IP whitelisting are the common ways to implement secure API integration. Trading platforms also regularly monitor APIs to detect changes and adjust their systems accordingly. This forestalls errors that may cause damage or allow hackers to exploit.
Multi-signature Wallets
Multi-sig wallets are more common in the crypto market, where traders store their funds in digital wallets. A multi-sig wallet requires multiple private keys to access funds and perform transactions. The keys are usually stored on different platforms to ensure safety; only authorized users can access them. This measure carries some risk; losing one key could only lock the user out of the wallet if there are backup measures.
Blockchain Technology
Blockchain is a distributed ledger technology that records one block of data on the previous and records the data on all nodes connected to the network. Blockchain is seeing more adoption for data security as it removes the risk of changing data records. FinTech companies use blockchain to secure data and explore blockchain-based technologies such as smart contracts to develop automated trading tools.
KYC and AML Compliance
Many registry bodies now impose strict anti-money laundering requirements to protect consumers and prevent financial crimes. Trading platforms require KYC to comply with AML regulations and ensure traders meet specific requirements. KYC/AML are also crucial for security as they help auditors track user behavior and suspicious transactions.
Regular Software Updates
Software updates are essential for trading software for various reasons. Regular updates ensure users have access to the latest security features and technologies, typically better than previous versions. Updates also enhance performance and security, secure data, and ensure that trading systems are defended against the ever-evolving cyber threats.
Intrusion Detection Systems
FinTech providers deploy detection systems to monitor online platforms and constantly identify potential vulnerabilities and intrusions. This helps prevent attacks and ensures timely incident response.
Penetration Testing and Audits
A proactive approach to security ensures companies stay ahead of cyber threats and mitigate risk. Penetration testing and regular audits help identify risks and vulnerabilities within a company’s security architecture, especially in the face of evolving cyber threats. Organizations often partner with third-party auditors and testers for unbiased reports and penetration testing but may also set up bug bounties to enhance testing.
Personal Security for Traders
Although financial services companies provide security infrastructure and require compliance with specific instructions, traders are responsible for securing sensitive data such as password details and avoiding phishing attempts. Compliance with these ensures traders fulfill their part in keeping modern trading platforms secure from malicious users.
