Crypto exchanges are businesses that store crypto assets and connect buyers and sellers to facilitate trading. With so many options available, choosing the right crypto exchange requires careful consideration. This article will cover the key factors to consider before making your decision.
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Choosing the right crypto exchange
Crypto exchanges function similarly to brokerage accounts. Users create an account, deposit funds, and purchase and sell securities such as stocks, bonds, or ETFs. Many functions similarly in part due to many exchanges sharing white-label solution software.
Users typically access exchanges via a mobile app or web browser and connect their own crypto wallet or use the exchange’s custodial wallet to execute trades. It’s important to note that not all cryptos are available on all exchanges.
When deciding on a cryptocurrency exchange, there are various factors to consider. These include security measures, fees, and the selection of cryptos available.
Another important aspect is asset security. Understanding how your cryptocurrency is stored (in your own wallet or on the exchange) is crucial.
You’ll also need to weigh up whether you prefer a centralized exchange (CEX), which adheres closely to financial regulations from governmental authorities (like the U.S. Securities and Exchange Commission), or a decentralized exchange (DEX).
Decentralized exchanges are unregulated online platforms that don’t have a centralized governing body. DEXs offer direct peer-to-peer trading with fewer regulatory burdens and greater anonymity than CEXs. However, CEXs tend to be easier to use, more beginner friendly and offer higher liquidity and faster transactions.
Finally, check the number of cryptos and crypto pairs an exchange supports. Choosing the right cryptocurrency exchange for you should be a decision based on your personal trading and investing strategy. For example, while Coinbase is one of the most popular for beginners, it only offers a relatively small number of digital currencies. You might want to look elsewhere if you’re interested in trading newer altcoins.
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Research the exchange and be aware of scams
Analyze the reputation and track record of any exchange you are considering entrusting with your funds. Check what other users say about the exchange (in online reviews, forums, and social media) and examine how the exchange presents itself.
Investigating any security issues an exchange has experienced and assessing how it has dealt with them is essential. By conducting comprehensive research, you decrease your chances of getting involved in a scam. In the past, some of the earliest and most popular exchanges, such as Mt. Gox, have collapsed, while others have been hacked or otherwise compromised.
Another way to ensure that a cryptocurrency exchange is legitimate is to check whether the exchange has a physical address associated with it. If an exchange doesn’t have a readily available address, it’s best to avoid using it.
Remember that transparency is often an indicator of legitimacy. Also, without knowledge of where the exchange is based, you may not fully understand the legal implications of your investments. In the event of a security breach or hack, having a physical address for the exchange can make resolving any issues with the exchange or regulatory authorities easier.
Assess the security of the exchange
Regardless of which exchange you decide to use, it’s advisable to research the way that the exchange stores its crypto deposits.
The most reliable exchanges store the vast majority of their digital assets, which are not required for liquidity, in offline storage, such as a cold wallet. This is often an available option, even for staked coins. This approach can help ensure the security and safety of your digital assets, protecting them against potential theft or loss.
It’s also important to check the transparency of a CEX in regard to proof of reserve publication, especially in light of the FTX collapse.
Learn about exchange fees
Consider how each exchange will affect your daily trading strategies. One distinguishing factor is the fees charged. Spend some time comparing trading fees across platforms. Fees may not always be straightforward and can be based on transaction size and level of activity in some cases.
For example, if you plan to trade actively every day on a centralized exchange (CEX), you may want to choose an exchange with lower per-transaction fees.
Our top crypto exchange picks
1. Kraken
- Best for: user interface
- Low fees with Kraken Pro account (start at 0.26%)
- Wide variety of crypto assets
- Range of educational content for new crypto traders and investors
- 222+ crypto pairs
2. eToro
- Best for: copy trading
- No commission for stocks or ETF trades
- eToro offers a demo account with $100,000 virtual money
- 77+ crypto pairs
Disclaimer
Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk, and content is provided for educational purposes only, does not imply a recommendation, and is not a guarantee of future performance. BeInNews Academy is not an affiliate and may be compensated if you access certain products or services offered by the MSB.
3. Bybit
- Best for: spot trading
- Low fees taker: 0.075%, maker: 0.025%.
- Zero fees on ALL spot pairs
- Wide selection of features: copy trading, trading bot, NFT marketplace, earn interest,
- Bonus for new users (up to 30,000 USDT)
- 358+ crypto pairs
Choosing the right crypto exchange is all about research
To choose the right crypto exchange, you first must know what you plan to use it for. If you plan to buy BTC and HODL in a hard storage wallet, your considerations should be appropriate for that requirement. Alternatively, if you’re looking for an exchange to facilitate crypto futures trading, your considerations will be specific to those plans and your trading strategy.
Always consider fee structures, available cryptos and crypto pairs, ease of use, reputation, security, and customer support offerings. Always conduct thorough research before you make any move in crypto, using a number of sources.
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