Does a Centralized Exchange Custody Eliminate All Security Risks for the Trader?

No, centralized exchange custody does not eliminate all security risks; it merely shifts the nature of the risk. While the trader is protected from the risk of losing their own private keys, they are now exposed to 'custodial risk.' This includes the risk of the exchange being hacked, becoming insolvent, or engaging in fraudulent activity.

Traders must trust the exchange's security measures and financial integrity, making 'counterparty risk' the dominant concern.