By Femi Olayiwola
A crypto exchange is a market that allows you to buy and sell cryptocurrency such as Bitcoin, Ether or Dogecoin. They function similar to other trading platforms you are familiar with. They give you accounts that allow you to create various order types that allow you to buy or sell, and even speculate in the cryptocurrency market.
Some exchanges have advanced trading features such as the margin account or futures-based trading however, they are not as widely accessible for U.S.-based users. Some have features like crypto staking and crypto loans that permit the user to gain interest in your crypto assets. The top exchanges provide education programs to keep you informed and up to the latest on all things cryptocurrencies.
Different Types of Crypto Exchanges
In general, speaking, there are two kinds of cryptocurrency exchanges: central exchanges and decentralized exchanges. Each has distinct advantages and disadvantages.
Centralized Exchanges
Centralized cryptocurrency exchanges (CEX) are controlled by a single organization. Centralized exchanges allow users to start trading, allowing customers to exchange their fiat currency like dollars, straight into cryptocurrency. Most crypto transactions are conducted through central exchanges.
Certain crypto enthusiasts are against centralized exchanges since they do not conform to the decentralized nature of crypto. And, in the view of certain crypto enthusiasts the organization or company may require that users adhere to “Know Your Customer” (KYC) rules. They require every user to reveal their identity, just like you do when applying for an account at a bank to stop money laundering and fraudulent activities.
There’s a second issue when dealing with central exchanges, that is hacking. When you use the CEX exchange, the exchange keeps the crypto that is traded through its platform at least for the short-term, but transactions are processed, increasing the chance of hackers taking assets.
To mitigate this risk central crypto exchanges have stepped up security in the past few years. Alongside other methods including, they store the bulk of customers’ funds in an offline location, and they also carry insurance policies to compensate cryptocurrency losses in the event of hackers.
If you prefer the ease of a central exchange, you can lower your risk by moving crypto into a separate cold or hot wallet.
Decentralized Exchanges
DEX is a decentralized exchange for crypto. (DEX) assign the responsibility of facilitating and confirming cryptocurrency trades. Anyone who is willing to join a DEX network can verify transactions in the same manner that the cryptocurrency blockchains function. This can help improve transparency and accountability and ensure that the exchange will continue to function regardless of the condition of the company that started it.
The issue lies in the fact that exchanges decentralized are less user-friendly not just from a user interface perspective, but also with regard to the conversion of currency. Decentralized exchanges, for example, do not always permit customers to deposit dollars in exchange for crypto. That means that you have already have crypto in your possession or utilize a centralized exchange to acquire crypto which can be used for a DEX.
It is also possible to engage in direct trade between peer-to-peer. It could take longer to find someone who is willing to buy your product and in the event that liquidity isn’t high it could be necessary to make concessions in the price of buying or selling an unpopular cryptocurrency quickly.
Crypto Exchange Fees
There are two kinds of fees when buying or selling cryptocurrency charges for trading and withdrawal fees.
Fees for Trading
The fees for trading can be billed as a percentage flat of the amount you buy or sell, or an exchange could differ between orders made by makers and those who are takers and charge different percentages in accordance with.
On the surface the term maker refers to orders that provide liquidity to an exchange. This means they are not able to fulfil orders that are in the process of being fulfilled. Takers, on the other hand, take liquidity from exchanges by fulfilling orders waiting to trade. The exchange may have different fees, but the maker’s fees are typically lower than taker fees however this may not be the situation.
If you’re looking to select an exchange that has the lowest price, focusing too long on the specifics of taker and maker costs can be detrimental. This is because you don’t have the option of choosing which order you want to process as a maker or taker. You’d be better off taking a look at the overall costs and discounts that are available when trading a specific amount every month or using the exchange’s native cryptocurrency.
Important note: Certain crypto investment applications claim that they charge no fees, however, this isn’t correct. Instead of charging you an all-inclusive fee, they charge spreads, which is the difference between the rates they charge when they buy and sell crypto. Spreads could, and often end up becoming much more costly than if you pay an amount of trading fees.
Withdrawal Fees
There are many exchanges that charge fees for withdrawing coins from their platforms. This could be a problem in the event that you decide to transfer your crypto into a secure third-party wallet, or to an alternative exchange. The fees for withdrawals are typically different depending on the currency.
If you plan to transfer your crypto away from an exchange, pick a platform that offers the use of a certain number of withdrawals that are fee-free, such as Gemini.
Other Fees
If you use more sophisticated strategies for trading such as margin trading, there are additional costs for borrowing money. The exchanges for beginners such as Coinbase and Gemini have features for quick purchases that have higher costs. Avoid them by learning how to purchase and sell on the trade platform of an exchange.
If you buy something with either a debit or credit card, you could be charged a higher rate by both the exchange as well as the card issuer. Therefore it’s best to purchase crypto using wire or cash.
How to Choose a Crypto Exchange
Beyond the fees, when selecting the most suitable cryptocurrency exchange be sure to consider the security of the exchange, its trading volume as well as educational resources. Also, consider whether the exchange has the cryptocurrency you’re looking to purchase.
Security
Since cryptocurrency has become more well-known and valuable has made it a huge attack target for hackers. The most prominent exchanges like Binance, KuCoin and Crypto.com have been targeted and resulted in tens of millions of dollars of losses. Although exchanges usually reimburse people who have lost their coins, no one wants to find themselves in this situation in the beginning.
You can limit the risk of losing your crypto purchases over multiple exchanges. Alternately, be sure to move your crypto funds from an exchange’s default wallet and into your own safe “cold” bank account. These are options for storage which aren’t accessible via the web, which makes them almost impossible to hack. However, you’ll need to be careful in recording your password, or else you’ll be denied access to your cryptocurrency for ever.
Coins available for sale
Be aware of the crypto currencies offered on any exchange. It’s possible to be content with a cryptocurrency exchange that trades only one or two coins. However, if you’re a crypto nut You may need access to over six hundred coins available on Gate.io.
Trading Volume
The mere availability of coins isn’t enough if there are no transactions taking place. You should ensure that there’s enough trading volume in the coins you want to purchase to assure that there is liquidity which means you are able to effortlessly trade your dollars and coins.
Markets with low volumes can cost you in sales. If you don’t have a lot of inventory and you place an order in, this is known as slippage. You may end up purchasing at a higher cost or selling for less than you like.
If you’re an experienced crypto trader, then you’ll be interested in ensuring that your chosen exchange has kinds of trading such as limit orders, that can stop loss of trade by giving a firm price, and the margin you’d like. Keep in mind that the types of trades that involve those are in their initial stages within the U.S., so different exchanges’ offerings could change with the course of.
Educational Resources
If you’re only beginning to get started in cryptocurrency, search for an easy-to-use cryptocurrency platform that has numerous educational resources that will assist you in understanding this complicated rapidly growing market.
Accessibility
Don’t think that a cryptocurrency exchange is accessible in your country or even in your state, just by accessing its website. Numerous federal and state governments are still working out how to deal with cryptocurrency from a tax and legal viewpoint.
