Cryptocurrency Exchanges. Different Types and Best Practices
16 min Beginners Beginners
Factors to consider when choosing a Cryptocurrency Exchange. The boom of cryptocurrencies resulted in a boom of crypto exchanges. If you search Google for the term, you may drown in offers, and the possibilities seem endless. So how do you find the perfect match?
When choosing a crypto-exchange, there are many factors to consider, factors that will help you narrow down the options and find the best one.
The currency is virtual and the machines powering the exchange may be anywhere, but the legal entity behind the crypto company is registered in a particular jurisdiction. The first way to narrow down the options is to look for exchanges that you can use in your home country. If you try signing up on a site that is prohibited in your country or state, the exchange will not let you pass through.
Best exchanges to buy/Trade cryptos
After taking the easy step of discarding out-of-reach exchanges, comes a harder part, but the most important one. You want to trust your funds with a company where you can later withdraw them without any doubts. And if you change your mind, it should be easy to transfer your coins to the competition. The primary way to check out the exchange is to look for reviews online and see what others think about it.
Apart from doing your homework and researching, there are quicker steps that can help to narrow down less-secure exchanges. The first is relates to the way the exchange stores your coins. If they keep the digital currency in cold storage, it reduces the risks of a hack. Maintaining the coins offline rather than online (hot storage) is a significant means of security.
The second means is a technique that you have encountered using other online services: two-factor authentication. The second layer of identification also increases the overall security.
These two quick checkups do not replace deeper research about the reputation of the exchange.
Tip: Identifying a biased review
Reviews and comments by websites that have done their research or fellow users can be a great tool. However, they are not necessarily real. If they include a link to the exchange they talk about, check the link.
If it includes some kind of extra id, or something line ?ref=, it means that it is an affiliate link. The author gets paid for every successful customer. The exchange may still be a good one, but you better look for a reviewer that does not have a vested interest.
If you want to trade Bitcoin or Ethereum, the choices are endless. Yet when you begin going down the list of market capitalization, the options narrow. Even Ripple is not present on all exchanges. So, if you are interested in trade a specific coin, an easy way to eliminate potential candidates would be to check if they offer to trade in your desired one.
If you are not sure which cryptocurrencies you want to trade, perhaps it is better starting from the most popular ones, but at an exchange that offers a relatively wide variety of coins, so you can change your mind easily before changing the exchange.
Some exchanges only accept funds in cryptocurrencies. Sounds like a Catch-22 situation? Not exactly. You can always purchase Bitcoin at another exchange which does allow fiat money and then transfer it to the exchange that does not. The process is more cumbersome and incurs costs. An exchange that accepts fiat money will usually have a more limited amount of coins on offer.
If you are alright with specific popular coins, perhaps trading with a broker is the way to go. The onboarding process is more straightforward and the tools are better.
But if your desired crypto asset is more specific, you may have to pass through the first hurdle of opening two accounts. You will probably forget the one-time process once you began trading your favorite coin.
Exchange by Deposit Methods
Every exchange uses a different interface and different charting tools. You obviously cannot get familiar with every option available as it would take too much time. Reviews with screenshots may become handy in getting the look and feel of the platform. If you prefer advanced trading tools, there is a good chance that a broker might have more sophisticated tools. However, if you want a clean and simple one, most exchanges will have such an option.
In addition to the ease of use, speed matters. If you are trading at a rapid clip or if you just need to have the system working properly without causing nervous breakdowns, watch out for reviews that complain about slow performance. Such exchanges could also have other issues.
A good trading platform will help prevent a fatal fat finger
A good trading platform also means having clear data and clear buttons so you will not make a fatal error. Here is an example of a “fat finger” error that went in the trader’s favor. It can also go the other way around.
In 2015, the Investor Armin S. bought certificates from BNP Paribas at a price of €108 instead of €54,400 each. This caused a loss of €160m for BNP. The error was not detected because BNP failed to book more than 8000 trades for a whole week.
The people and processes behind the crypto exchange are critical for your onboarding, which may be complicated. At this stage, the people taking care of you should be at their best: it is in their interest to see you make a deposit and begin trading. If they are not up to speed at this stage, it is worrying sign. Reviews about the procedures can help in discarding exchanges that deploy problematic practices.
After the initial setup, you will hopefully not need to use any help from the support team. If you do run into issues, they should be resolved quickly. Commentary suggesting a swift and friendly response to addressing any issues is a good sign while stories of endless deliberations should put you off. Time is money also when dealing with digital money. Even if the problems are resolved, the time and energy are better spent elsewhere.
The flashing red lights should come from complaints about withdrawals. This is an absolute no-no. Withdrawing should be smooth. Always.
A high level of liquidity means you can easily buy and sell cryptocurrency as the market is full of fellow buyers and sellers. A low level of liquidity or illiquidity implies that even though a specific price is quoted, there is no one to buy nor sell. You obviously want an exchange which has a high level of liquidity. In addition to easing transactions, having high liquidity also results in more realistic prices. If the quoted price of the cryptocurrency is not updated frequently, it may not be practical, as prices may have moved on another exchange, which enjoys higher liquidity.
The bigger ones have better liquidity but may have other drawbacks, such as not featuring your preferred coin. If you seek to trade s specific digital coin, you can inquire about the level of the liquidity in that specific one. The general rule of thumb is that the larger the exchange is, the higher the liquidity is on all the coins on offer.
While there is a lot of competition between crypto exchanges, the costs may differ. Before we get into the transaction fees, we need to talk about the initial costs of buying cryptocurrencies. Not all exchanges allow you to pay with a debit or credit card. This basic payment method can be costly in those that do offer the privilege: 5% is not unheard of, and 3.5% is not uncommon. Making a wire transfer from your bank account may be far cheaper, perhaps 0.5%, or even free. The fees vary greatly from exchange to exchange, and you should check it out carefully.
So now you are signed up for the exchange and want to begin trading. Every trade has its cost. If you see someone selling the cryptocurrency you want to buy at a certain price that you agree to pay, you place the order, and it is executed immediately, as the seller was already there. For this transaction, you would need to pay the Taker fee. You took an existing order that was already out there. The cost can reach 0.50% but normally expect 0.25%. The same Taker fee goes for selling. If you see an offer to buy the coin at a specific price that you agree with and you sell, you are also taking out an existing order.
There is a different fee when you place an order that does immediately have a counterpart. Let’s say you are willing to pay less than the lowest sale price but higher than the highest bid. Your order will not be fulfilled immediately and may never be fulfilled. You are taking a risk and creating more liquidity. The reward is a lower fee, the Maker fee. Expect to pay around 0.10%.
Now, the Taker and Maker fees are a percentage of the transaction. However, many exchanges modify the percentage based on your total trading volume. A more active trader will enjoy a lower percentage. Anything can be negotiated, but when comparing, it is essential to look at what is on offer.
The cost considerations are not over just yet. When transacting on cryptocurrencies, they have to register on the blockchain, and that also incurs a cost, caller a Miner fee or a Network fee. The cost ensures that the operation is swiftly processed by miners. While this is usually a modest fee in comparison with the others, it is also something to factor in.
All in all, trading in cryptos has costs, like any other financial transaction. It is important to be aware of all the costs and also to compare between the exchanges, as fees may undoubtedly vary.
See our up to date exchange listing.
Some exchanges accept only cryptos while others accept fiat currency and this impacts the decision.
Fees by Exchange
|EXCHANGE||Deposit Fees||Withdrawal Fees||Trading Fees||Coin discount program||Rebate Program|
|Bitpanda||0.0001 BTC||0.00001115 BTC||No data||No||No||More Info|
|Binance||Free||0.0005 BTC||0.10%||Yes||Yes||More Info|
|Changelly||from 0.5%||from 0.5%||from 0.5%||No||No||More Info|
|Cex IO||0 - 3,5%||$1 - $3.8||0.16 - 0.25%||No||No||More Info|
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Factors to consider when choosing a cryptocurrency exchange The boom of cryptocurrencies resulted in a boom of crypto exchanges. If you search Google for the term, you may drown in offers, and the possibilities seem endless. So how do you find the perfect match? When choosing a crypto-exchange, there are many factors to consider, factors that will help you narrow down the options and find the best one.
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The information provided by FXStreet does not constitute investment or trading advice and should be just treated for informational purposes. Our content may also include affiliate links or advertising from other websites, however we are not responsible or liable for any actions of other websites. Investing in Cryptocurrencies involves a great deal of risk, including the loss of all your investment, as well as emotional distress.