How Do I Choose a Crypto Exchange

Cryptocurrency exchanges are platforms that facilitate buying, selling, and trading of cryptocurrencies. Not all Crypto exchanges are created equal. Depending on its type, features, and security measures, each trading platform is suited to certain kinds of users with a specific set of needs. Read on to determine the best cryptocurrency exchange for you.

Types of Exchange

Brokerage

There are exchanges that allow users to buy or sell directly from the platform. This allows for instant transactions and is best if you are just starting out.  You will most likely be expected to verify your account by providing personal information.

Peer to Peer

Also known as P2P, these platforms are preferred by those who value privacy above all else.  They allow one-on-one trading relationships wherein the two traders decide upon the price and payment methods autonomously. Some P2P exchanges are location-based and just help you find a place to meet other traders. Most P2P platforms will go a little further by also facilitating the transaction and acting as an escrow and arbitrator in the case of disputes.  Your privacy is normally well-protected on these platforms but the responsibility for your security and the security of your funds is your own.

Full Trading Platform

Full trading platforms put a large number of users together and allow them to exchange among themselves within the platform, like a real stock market. Full trading exchanges utilize an order book to match buy and sell orders.  The big ones even provide various features such as special order types, margin trading, customizable graphs etc. Many of these features will be unnecessary for the beginner user.

Functionality and Features

Trading Features

Platforms providing many features (margin trading, advanced order types and complex charts) are recommended only for very experienced traders who have a deep understanding of how the crypto industry functions. For beginners, the simpler the exchange, the better.

Functionality

Regardless of your trading experience, the first thing you need to consider is can the platform manage the transaction you want to perform?  Every platform supports a different combination of crypto and fiat currencies, different languages, and serves a different geographical area.  Particularly US customers should be aware many large exchanges do not accept US customers from some states.

Fees

Each platform has a completely different fee structure that is targeted to a particular type of user.  If you are a day trader you don’t want high individual transaction fees, on the other hand, if you just want to buy a little coin to save for your retirement transaction, fees will be less relevant than other features aimed at frequent traders. One thing to keep in mind is to look at all the fees.  One platform may charge high fees for depositing fiat currency but low transaction fees between coins. 

Privacy

For many, the crypto world is the wild west.  Part of the appeal is that you can trade completely anonymously.  As regulation becomes more and more developed and governments become more and more involved this is becoming less predominant.  However, it is still possible to buy, sell and trade cryptocurrencies without anyone ever knowing who you are.

Security

A side-effect of anonymity is that security is always important when dealing with cryptocurrencies.  You should consider all the same issues when choosing an exchange as you do with a wallet with one important difference. An exchange is built for fast easy transactions which means sometimes security needs to be compromised. 

Account access

Similarly to wallets, a good exchange platforms will provide 2 Factor Authentication and/or multi-signature functionality for any accounts that you have with them. The difference here is that with some exchanges you don’t have a wallet or account, so this is unnecessary.

Key Storage

Although it is generally acknowledged that cold, client-side storage is the safest way to secure your funds, this is not always possible on an exchange.  It’s just too slow.  A good exchange will, however, pool all user funds from the entire platform and remove a large percentage to cold storage.  That means, if the platform is hacked they won’t lose all the funds, just a small fraction. If you have a large amount of funds and want control over your key storage you really should remove them from the exchange and keep them in a wallet.

Recovery Phrase

There are 2 ways a platform can manage your funds. They can create an individual completely independent account for each user or they can create one account with a variety of sub-accounts.  Exchanges usually use the single accounts with sub-accounts option so transactions can be processed faster.

Insurance

Since cryptocurrencies are still new and much of the industry is unregulated in the vast majority of cases, you are your own insurance.  But, as the industry expands and regulation compliant mega sites find their footing, various forms of insurance on your funds are an option. Some exchanges who follow government regulation and store customer funds with registered banks are able to extend government-backed deposit insurance to their user's fiat accounts.  Even fewer exchanges have taken out 3rd party insurance on crypto balances on their platform. 

User Experience

If you started trading recently, an exchange with a basic or intuitive design is your best choice. For more experienced users, a platform with a more developed or complex interface is recommended.

Design and user interface can make a big difference in how successfully you can navigate the exchange platform.  It may be worthwhile to see what other users have to say about the platform.

Finally, customer service. What happens if something goes wrong?  Will someone be there to fix it or help you understand how to fix it?

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