Let’s say, you have some USD or local currency and want to buy Bitcoin with a credit card. Or you have some coins and want to trade them for fiat money. Or you even have a lot of various cryptocurrencies and are ready to trade. Anyway, you need an exchange.
Cryptocurrency exchange is similar to regular stock markets. There are a lot of users who want to buy or sell their coins. Some exchanges offer only crypto-to-crypto trading while others sell coins for fiat money. Exchanges have different fees for transactions or membership, feature more or less coin pairs, offer higher or lower prices for cryptocurrencies. Still, it’s a tough decision to choose the appropriate exchange from over 190 options! This article should help.
Before we start, remember that trading or investing in crypto always involves risk due to high volatility of the market. Nobody can guarantee profits. So, it’s crucial to do your own research and choose a reliable exchange. Now let’s explore what to look at.
Answering 5 Main Questions Helps You Find the Best Exchange
In fact, there will be 6 questions. The first one which you must ask yourself – What is the purpose of buying? There are different types of exchanges, like regular trading platforms, peer-to-peer markets, and brokers. The first two options allow users to buy and sell crypto. But broker sites only sell coins and there are no ways to trade them back instantly. So, again, first of all, decide what type of exchange you need: «buy-and-sell» or only «buy».
Then proceed to other basics. Considering the following questions can simplify the choice, just be consistent and weigh all the pros and cons.
1. Where is it located?
Cryptocurrencies and blockchain technology are still restricted by national laws and regulations. Some trusted exchanges are available for a relatively small amount of users. As well, residents of the USA can’t trade at various international exchanges, such as Binance, as there are states that are not served. That’s why it’s important to check the availability of exchanging sites in your country and explore national crypto laws. This can help in case of conflict with the exchange.
2. Is it secure?
Extremely safe exchanges may require a lot of personal information including photos of your ID or something like this. It could be frustrating, but stay cool. Complex verification means higher protection. This way exchanges follow “Know Your Customer” and “Anti-Money Laundering” rules, so everybody can be sure about the legality of operations.
There are several marks of the trusted exchange, as well:
- Available two-factor authentication;
- Offline storage for users’ funds;
- Encrypted e-mails and notifications;
- The site and the wallet are up and running.
But anyway, it’s better to store most of your crypto money in the private wallet outside of the exchange.
3. Which coins are supported?
And other valuable stats. It’s obvious that the chosen exchange must offer the desired cryptocurrencies. Since there are about 1600 tokens, the single site can’t support all of them. For newcomers, it may be enough to deal with the most popular cryptocurrencies like BTC, ETH, LTC. They are supported by almost every exchange, including popular exchanges like Gemini, Kraken, and GDAX.
But if you want more, it’s time to do some research:
- Go to Coinmarketcap and open the list of all available cryptocurrencies;
- Choose any coin and move to its page;
- Look for the “Markets” tab to reveal which exchanges trade this cryptocurrency.
Coinmarketcap also offers a list of sites ranked by the daily trade volume. These stats are essential as they show how much money people are trading there. And this reflects the trust level and the speed of closing deals.
4. What payment methods are accepted?
Most exchanges accept bank transfers, payments via credit or debit cards, and rarely PayPal or other e-systems. There are also sites which work only with cryptocurrencies. It’s important to think about available payment options to be able to buy or sell coins via a certain exchange. Options are heavily dependent on the location of the exchange as well. Experienced traders can use two and more markets to get more profit, but they should always remember about the fees.
5. How high are the fees?
Almost every exchange charges fees. Usually, they vary from 0.1% to 7% depending on the type of exchange, amount of traded coins, level of user activity, etc. Some markets are more profitable for big deals while others offer better conditions for small short-term purchases and sales.
All in all, fees can be divided into three groups:
- Miner fees. Here we have a payment for miners to process a transaction. The higher the fee, the faster it will be processed. Normally, fees are about 0.00001 BTC.
- Conversion fees. These ones are related to exchanges. When users buy or sell cryptocurrencies for fiat money, they have to pay conversion fees which depend on the chosen payment method and the amount of money converted.
- Trading fees. These fees are for trading coins. Takers – people who remove liquidity from the order book – pay higher fees than makers.
Major red flags
Like ICOs, exchanges have their own red flags – typical features of fraud and scam sites. Here are the most noticeable ones:
- Exchange doesn’t provide legal info, especially, about the official address;
- The site doesn’t require verification, which means it violates KYC and AML policies;
- There are a lot of negative comments about the specific exchange;
- Exchange failed to protect users from two or more hacks in a short term;
- Fees are extremely high or low.
Always study the exchange features before registering. Better take more time and do the in-depth research to protect your funds.
The cryptocurrency markets are quite risky, so try to find the trusted exchange which meets all of the listed criteria.