As of 2021, the automated trading market, also known as the algorithm trading market, was valued at USD 15.55 billion. That’s one huge and growing industry, attracting more players annually. Sadly, it’s not all good news – this market attracts not only investors; it has also drawn the attention of cybercriminals.
This development has made it pertinent for anyone in the algorithm trading market to take extra precautions. These criminals are so vicious that they could steal your investments with a few clicks or even hold you to ransom. This article enlightens you about cybersecurity risks in automated trading and how to protect your investments.
Automated trading systems are programs designed to follow specific market algorithms 24/7. It is often used by people who don’t have time to formulate, execute and monitor their trading plans. These automated systems search for trends, evaluate data and implement categorical mathematical formulas. These formulas produce signals on whether to buy or sell.
The advantages of using an ATS are the following:
- Time-saving: you don’t have to be online every time
- Money-saving: you don’t have to subscribe to expensive data feeds or market quotes
- Reduced stress: you’re saved from the stress that comes with manual trading
- Better performance: you’re able to meet your investment goals quickly
6 cybersecurity risks in automated trading
As mentioned earlier, the algorithm trading market is a magnet for cyber thieves. They keep coming up with new methods of ripping people off and causing damage. Below are some cybersecurity risks in algorithm trading.
1. Third-party software attacks
Third-party software are used by both investors and individuals in the trading industry. These software are useful and come in handy with digital asset management, tax reporting and so on. Unfortunately, not all of these software are trustworthy. Some of them are fraudulent, while others simply expose you to more attacks.
2. Botnet attacks
Botnet attacks use a network of infected bots to perform malicious operations. These infected devices or bots are controlled remotely by a hacker. Infected devices in a bot network can include phones, computers and any device connected to the internet.
The hacker controls the bot through a command & control (C&C) server. This server sends commands to the infected devices to perform determined activities. These activities can be hacking into victims’ devices, stealing their data and logging into their trading platforms.
Botnets are used for many purposes, including:
- Stealing data: they’re used to steal data like login details, credit card numbers and other personal and financial info
- Spamming: botnets are used to spread malware through spam emails
- Click fraud: botnets can hack your account and click on links or ads that will generate income for the fraudsters
- Distributed Denial of Services (DDoS) attacks: botnets can be deployed to attack a website or server by flooding it with huge traffic, in a bid to deny legitimate users access
Ransomware is a cyber attack that can affect everyone using a computer and the internet, people using ATS inclusive. It is a malware that uses encryption to lock your computer and stop you from accessing your data. A ransom is then demanded from the victim before access can be given. This extortion software can stop you from having access to your ATS.
4. Phishing attacks
Phishing is a social engineering attack by cybercriminals to rob victims of their data. This cyber thief pretends to be a trusted entity and tricks the victim into opening an email or other forms of messages. Once the victim opens the email or an embedded link, the criminal gains access to their data. This data can be used to steal identities and monies or make unauthorized purchases.
If you’re involved in algorithm trading, especially if you’re a clumsy phone user, you might lose your investments to online fraudsters. Through phishing, a cyber thief can easily access the login information of your trading platform and move your investments. Phishing can also be used by ransomware attackers to gain access to their victims.
5. Brute force attacks
A brute force attack uses guesswork and trial-and-error tactics by cyber thieves to decode their victims’ login credentials or encryption keys. The term ‘brute force’ is used to describe this attack because hackers force their way into people’s private accounts, using excessive forceful attacks.
Brute force attack has been around for a very long time and is still quite effective. Cracking the victim’s password can take minutes, hours, days and even months, depending on how complicated it is. These hackers don’t mind how long it takes to force their way in; they keep trying until they get it.
6. Illegitimate trading platforms
Every day, new trading platforms spring up and illegal ones are part of them. A lot of eager, unsuspecting traders jump on their ships and are soon sunk. As a rule of engagement, these platforms have access to their customers’ trading info and steal from them without leaving a trace.
6 ways to protect your investments from cyber attacks
The fight against cybercrimes is continuous, especially for investors in digital assets. Daily, cyber fraudsters keep coming up with new ways to rip their victims off. That is why every investor must be abreast of new measures to fortify themselves against these attacks. Below are 6 ways you can protect your investments from cyber criminals.
1. Use a platform with a solid third party risk management framework
A good third party risk management framework is one of the criteria for choosing a trading platform. Any worthy trading platform would take the necessary precautions to protect their clients’ accounts. Third-party risk management (TPRM) is a concept that refers to how a company evaluates, tracks and responds to risks by third-party agencies they have to work with.
Trading platforms must do their due diligence and ensure they follow industry best practices in setting up a framework. This is paramount to their customers’ protection. Likewise, it is your duty to thoroughly research the company you want to trade with to ensure they comply with the relevant regulations. A good TPRM limits your exposure to third-party software attacks.
2. Invest in bot protection software
Getting a bot protection software is the surest way to prevent losing your investments to cybercriminals using botnets. A good software must provide real-time AI-powered protection. Also, the software you choose must be equipped with threat analytics and notifications to mitigate bot attacks. Additionally, your chosen software must have solid technical support to ensure maximum security and performance at all times.
3. Follow ransomware prevention best practices religiously
To protect your investments from ransomware, you must adhere to best practices. These practices include but are not limited to the following:
- Safe internet browsing: practice safe browsing – download only from trusted sources and don’t respond to emails from unknown persons
- Use secure networks: be sure of the networks you log into and don’t use public WIFIs
- Invest in security software: protect all your devices with security software and always update them
- Back up your data: have backup copies of important files, preferably in the cloud
4. Prevent phishing with the recommended measures
The following tested practices can prevent phishing:
- Email security: invest in email security solutions that can identify emails with malicious links and spam content
- Have 2-factor authentication (2FA): the extra layer of verification gives you more protection from phishing
- Stay abreast of phishing tricks: familiarize yourself with the various phishing tactics, so you can easily identify them
5. Use passwords that are difficult to crack
To protect your investments from brute force attacks, use passwords that are not easy to decode. Avoid using passwords with easy clues like your date of birth, name of city or pet name. The more difficult your password is, the harder it will be to crack.
In addition, a 2-factor authentication (2FA) gives added protection to your investments. If perchance, an attacker succeeds in getting your password, they will need a second authorization to access your accounts and devices.
3. Do a thorough background check of trading platforms
Before choosing a trading platform, ensure you do your homework. This is vital as many fraudsters pretend to be trading platforms and lure innocent investors. Here are ways to know if your trading platform is genuine or not.
- Professional organizations membership: regulatory bodies have data and records of their members you can check before choosing a platform
- Registration in ‘safe’ countries: ensure the company is not registered in countries notorious for corruption where fraudulent businesses can be easily registered
- Check online reviews: one of the purposes of reviews and ratings is so you can get a wealth of information about a platform; take advantage of it
Protect your investments with cybersecurity best practices
The advancements in algorithm trading have led to increased cybersecurity risks. As a result, many unsuspecting investors are frequently being defrauded. This sad development has made it necessary to take precautionary measures to protect automated trading investments.
Some of these risks are third-party software attacks, botnet attacks, ransomware, phishing and brute force attacks. To protect your investments from these attacks, use a platform with a good third-party risk management framework, invest in bot prevention software, follow ransomware and phishing prevention best practices, use complex passwords and thoroughly research your trading platform.