Of course, some traders keep their funds on the exchange and may use their funds to trade. But they only keep a small amount and the other funds in a separate wallet so they can control how they are used. We can't blame those who keep their funds in the exchange because they may have reasons for doing it. But hopefully, no one will get into trouble like yesterday's FTX case and immediately move the funds to their personal wallet.
In the case of traders, I don't think it's wrong to keep some of their funds on exchange, but vice versa, for investors having full custody of their assets is far more advisable. It is always not safe choice to trust third parties regarding assets
[especially centralized exchanges], nor should you trust new wallet project that is not yet fully trustworthy and reputable and not many people are testing it.
The OP indirectly asked and might want to get review for the Utopia P2P wallet project and its goals, but I'm inclined to think that this is new project that still needs to be tested. I tend to think HW and other open source wallets are good choice, but I don't know much about Utopia P2P.
If the purpose of the traders is to trade on the exchange, it is certainly not wrong if they keep some of their funds on the exchange because they use the funds for day-to-day trading. But to keep most of the rest in the exchange would not be advisable because it would put us at risk. It's better to keep the funds in a separate wallet that we can keep an eye on and be fully responsible for.
I've heard of the Utopia P2P exchange project, but I've never tried it. I was too scared to try a new exchange and would only consider trying it after I could get ratings from other members.