There are more than 600 cryptocurrency exchanges worldwide for investors to trade cryptocurrency assets, such as Bitcoin, Ethereum and other digital assets. However, investors must be aware that costs, quality and safety of these exchanges vary widely. Therefore, to make a profitable investment, investors need to pick, sign up or register with a low cost and well established cryptocurrency exchange, where they can buy and sell digital currencies. The following are important information, to help you pick the right account for your cryptocurrency investment.
The below explanation is important, especially some cryptocurrency exchanges support advanced trading features, for instance margin account or futures trading, although these are less commonly available to investors in some countries, such as the United States. Other cryptocurrency exchanges have features, like cryptocurrency staking or cryptocurrency loans, that allow investors to earn interest on their cryptocurrency holdings. Moreover, investors can search for the best cryptocurrency exchanges that provide educational offerings to keep investors up to date on cryptocurrency related issues.
How to Choose a Cryptocurrency Exchange
When choosing a cryptocurrency exchange, investors should consider important features, such as fees, security, trading volumes, educational resources and whether an exchange lists the cryptocurrencies you’re interested in buying. We illustrate below on each feature that you must pay attention to:
Security
It is true that cryptocurrency investment is increasingly becoming more popular and valuable, but also is becoming vulnerable for hackers. For instance, leading cryptocurrency exchanges, such as Binance and KuCoin, have been hacked, resulting in tens of millions of dollars in losses.
To avoid such security risk, investors should pick a well know exchange or, alternatively, move your cryptocurrency holdings out of an exchange’s default wallet to your own secure cold wallet. Cold wallets are storage options that are not connected directly to the exchange, making them difficult to be hack. However, investors must carefully record cold wallet passcodes to avoid losing access to their assets.
Trading Volume
Investors must ideally verify that there’s sufficient trading volume in the targeted exchange to ensure liquidity, so you can easily trade your cryptocurrencies and currencies.
For instance, investors should avoid exchange that has low trade volume, because low-volume cryptocurrency exchanges could cost you on sales. If there’s low volume and you put an order in, you could end up buying at a higher price or selling at a lower price than you’d want.
Also, investors should make sure that preferred exchange offers the most important trading features, such as limit orders, which can prevent slippage by setting a hard price—and margin you want.
Educational Resources
As a beginners with cryptocurrency investment, you must look for an easy-to-use platform with educational resources to help you understand this complex, rapidly developing market.
Cryptocurrency Exchange Fees
Investors must check the investment fees that exchanges introduce and choose the lower fee platform. As a cryptocurrency investor, you pay three types of fees when you buy and sell crypto: buying, selling, and withdrawal fees.
Trading fees
Trading fees, buy and sell fees, may be charged as a flat percentage of the amount of cryptocurrency you buy or sell, or an exchange may differentiate between orders that are makers and those that are takers, charging a different percentage accordingly.
We strongly recommend that investors should ideally pick an exchange with the lowest costs. However, some cryptocurrency investment apps claim to charge zero fees, but this isn’t entirely accurate. Instead of charging you an outright, they charge a spread—that’s the difference between the rate at which they buy or sell cryptocurrency. Spreads can end up being much more expensive than if you paid a percentage trading fee.
Withdrawal fees
Many exchanges charge fees to withdraw coins from their platform. This can be an issue if you prefer to move your cryptocurrency to a secure third-party wallet or to another exchange. Withdrawal fees typically vary by cryptocurrency. Investors should pick a platform, such as Gemini, that allows a certain amount of fee-free withdrawals or less fees on withdrawal.
Moreover, for investors who are engaging in more advanced trading strategies, like margin trading, they are facing with additional fees associated with borrowing money. Beginner-friendly exchanges like Coinbase and Gemini offer quick buy features that charge higher fees. You can avoid these fees by learning how to buy and sell on an exchange’s trading platform.
Sometimes, if an investor purchases cryptocurrencies using a credit card or debit card, he or she may be charged a premium by both the exchange and card issuer.
Different Types of Cryptocurrency Exchanges
Mostly, there are two types of cryptocurrency exchanges: Centralized Exchanges and Decentralized Exchanges. Each category comes with its own advantages and disadvantages.
Centralized Exchanges
Centralized Cryptocurrency Exchanges (CEX) are managed by one organization. Centralized exchanges are simple and easy to start the cryptocurrency investment. The centralized exchanges allow users to convert their currency, like dollars, directly into cryptocurrency. The vast majority of cryptocurrency buying and selling take place on centralized exchanges.
The centralized exchanges consider to be secure system, because they go against the decentralized ethos of cryptocurrency. The centralized exchange participants are required to follow Know Your Customer KYC rules. These rules require each user to reveal their identity, similarly as you would when you apply for a bank account, to combat money laundering and fraud.
There are concern of hacking with centralized exchanges. With the Centralized Cryptocurrency Exchanges CEX, the exchange holds the cryptocurrency traded on its platform, at least in the short term, while trades go through, raising the risk of hackers stealing assets.
However, to avoid this risk, Centralized Cryptocurrency Exchanges have enhanced with advance security mechanism over recent years. Among other strategies, they now store most customer assets offline and take out insurance policies to cover cryptocurrency losses in the case of hacking.
Investors participating in the centralized exchange, can reduce their risk by transferring their assets to a separate, off-exchange hot or cold wallet.
Decentralized Cryptocurrency Exchanges
Decentralized Cryptocurrency Exchanges (DEX) distribute responsibility for facilitating and verifying cryptocurrency investments. Decentralized Cryptocurrency Exchanges DEX network participants can certify transactions, similar to the way cryptocurrency blockchains work. This may help enforce accountability and transparency as well as ensure an exchange can keep running, regardless of the state of the exchange platform.
However, there is concern related to the decentralized exchanges, as they are much less user friendly, from both an interface standpoint and in terms of currency conversion. Contrary to the centralised exchanges, the decentralized exchanges, for instance, don’t always allow users to deposit dollars and exchange them for cryptocurrency. This means you either have to own cryptocurrency in advance or use a centralized exchange to get cryptocurrency that you then use on a decentralized exchanges.
You’ll also likely be engaging in direct peer-to-peer trades. This means it may take longer for you to find someone looking to buy what you’re selling and, if liquidity is low, you may have to accept concessions on price to buy or sell a low-volume cryptocurrency quickly.