Most people who keep coins on exchanges do so for trading purposes; it is simply more convenient to have funds readily available on the exchange to buy cryptocurrencies when prices drop or surge. In my own case, for example, I actively trade using 4-hour charts. It might take days for a buy signal to appear whether the price rises or falls and when that signal finally emerges, I need to act quickly. It wouldn't make sense to keep my capital in a private wallet and have to transfer it to an exchange every time I want to make a purchase. That is why I keep my trading capital on the exchange, though I always withdraw my profits.
It is also well understood that larger trading capital generally leads to larger profits though, naturally, it also entails greater risk. Consequently, many people keep significant amounts of capital on exchanges to trade with larger sums and maximize their potential gains. Those who prefer a "buy and hold" strategy, however, do not need to keep their funds on an exchange; they can store them in a private wallet for the long term. Even so, there have been instances where people have had their coins stolen. For example, last month there was this piece of news:
Crypto thieves attack man in home and threaten to kill pregnant wife's baby in 'horrific' robbery
source:
https://www.bbc.com/news/articles/c6eq84eygz0qoThe guy had his cryptocurrencies stolen at home and was tortured. This goes to show that even when held in a wallet, coins might not be 100% secure. a recent case of cryptocurrency theft from a wallet, and another example
The Coldcard wallet theft: is self-custody really worth it?
source:
https://bitso.com/blog/coldcard-wallet-theft/At the end of the day, the best thing people can do is to always keep their cryptocurrencies in different places and in varying amounts. For example, you could hold long-term assets in one wallet making sure to keep the private keys secure while keeping another portion in a separate wallet. You might also leave an amount you can afford to lose on an exchange for trading purposes, and always withdraw any profits into a dedicated wallet for safekeeping.