There are hundreds of exchanges out there but choosing the best exchange is important. Continue reading and learn how to choose the best cryptocurrency exchange. There are many important factors that you must consider before you choose a cryptocurrency exchange. Considering the fact that there are hundreds of different exchanges and many popping up all over the world, it is important to choose the best cryptocurrency exchange. In this article, we will help you navigate through all of the considerations that should go into choosing the best cryptocurrency exchange for you.
– Figure out the best cryptocurrency exchange for you –
Filtering through the Exchanges
Since there are hundreds of exchanges, the first thing you’ll have to do is eliminate the vast majority of them. It’s not realistic to go through each and every one of them individually. So most of the startups should be eliminated by default. You want your primary exchange to be a reputable exchange with some history behind it.
If you need help selecting a few exchanges, check out this article on some of the best exchanges. It will help you make a list of top cryptocurrency exchanges based on various metrics such as total volume, regulation, reputation, etc.
After you have a list of viable exchanges, you can go over the following factors to determine which exchange is ideal for your particular situation.
Exchanges that Accept Fiat Deposits
If you’re completely new to cryptocurrency, this bit will prove to be quite important. There are some exchanges that do not accept fiat currency deposits. In order to use these exchanges, you first have to convert your fiat currency into cryptocurrency and then transfer the cryptocurrency to one of these exchanges.
So if you need to buy cryptocurrency, you will need to choose an exchange that accepts fiat. These exchanges will also require your personal information in order to adhere to anti-money laundering laws and other regulations imposed on companies that take in customer deposits.
The following is a list of exchanges that accept fiat currency:
– You have to consider the pairs you’re interested in before choosing an exchange –
Most exchanges offer only a handful of cryptocurrency pairs. For example, Coinbase, one of the most prominent cryptocurrency exchange only offers five trading pairs, namely:
- BTC/USD – Bitcoin
- LTC/USD – Litecoin
- ETH/USD – Ethereum
- BCH/USD – Bitcoin Cash
- ETC/USD – Ethereum Classic
So if you’re only interested large-cap cryptocurrencies, then you won’t really need to look much further. However, if you want to add small-cap exposure to your portfolio, then you would need to take that into consideration.
Market liquidity is the total volume of transactions in a given period of time such as a 24-hour trading session. It can help us gauge the ease at which we can buy and sell at the prevailing market price.
Now if you’re only going to be trading Bitcoin or Ethereum, chances are you will never have to contend with the liquidity in the market. That is unless, you’re transacting obscene amounts of money, in which case you probably wouldn`t be reading this article.
Also, thinly traded markets or illiquid markets tend to have wide bid/ask spreads. It might not seem like much, but if you’re an active trader, that spreads will definitely cut into your bottom line.
– You want to make sure your exchange utilizes all of the industry standard security systems –
The security infrastructure of an exchange is important. There is a reason why some exchanges are bankrupted after one security breach while another can persevere and even thrive with time. For example, Bitfinex, despite losing a considerable amount of its depositor’s funds, survived the ordeal and even returning some of those funds two years later.
So you want to make sure that the exchange does, in fact, hold most of its depositors’ funds in a cold storage. So if there is a security breach the losses are manageable. On the consumer side, you want to make sure that exchange offers 2-factor authentication, multi-level verification regime for various actions and industry standard encryption.
Trading and Exchange Platform
If you’re simply looking to exchange some of your fiat currency into cryptocurrency then you don’t need to take this factor into consideration. However, if you’re interested in active trading, you will definitely want to choose an exchange that services the specific needs that active traders have.
For example, traders often leverage their position increases the risk they take per take by using their deposited funds as margin or collateral. On the other side, you could also offer your funds to traders in return for interest income. Bitrex and Bitfinex are good examples of a robust trading and lending platform for their customers.
No matter how good of an exchange platform you use, there will be a time where you will need to seek out a customer support representative. A highly responsive customer support team can save you precious time and avoid any negative experiences.
Cost of Trading
Every single transaction you make on an exchange will have a cost associated with it. There are a number of ways in which exchanges can charge their customers. Transaction fees are one of the most common ways exchanges make money.
However, you also need to consider other costs such as deposit fees, withdrawal fees, bid/ask spreads for the market-maker. All of these costs and really add up and hurt your bottom line, especially if you’re an active trader. It is important to take all of these costs into consideration when making a final decision.
All in All
The cryptocurrency exchange you end up choosing will act as the gateway into the world of cryptocurrencies for you. As we discussed in the article, there are many different factors you need to consider when choosing an exchange.
Hopefully, this article will serve as a guide for you to choose the best cryptocurrency exchange for your particular needs. If you have any questions at all, feel free to ask in the comments section and we will get back to you as soon as possible.