There are almost as many cryptocurrency exchanges out there as there are cryptocurrencies, and this creates what’s called a dilemma of choice for investors. With so many options, which one will you pick? The most obvious way to choose is based on the assets you want to trade. If you’re looking to trade some lower market cap coins, then you may not have a choice but to go with some rather unusual choices.
However, for investors that are interested in trading higher market cap assets such as Neo or Ethereum, there are a lot more options to choose from. To that end, in this article we’ll be going over some considerations you’ll need to make before you choose your new crypto trading platform.
Some exchanges may simply exclude your region, so this will likely be one of the biggest determining factors for where you set up shop. This problem is painfully apparent for Americans, who are excluded not only from ICOs, but also a large number of global exchanges who do not wish to deal with the regulation headaches of servicing them.
However, there are other countries where cryptocurrencies are not looked fondly upon, and if you live in one of these locales, then you may need to utilize an exchange which does not require any verification. A decentralized option is likely the best way to avoid being shut out due to your country.
You should also consider whether you want to trade on a centralized or a decentralized exchange. A centralized service is controlled by one governing body, which is typically the company behind it. Often times these exchanges have huge marketing budgets, and thus they control a large portion of the cryptocurrency market liquidity.
However, there are some serious drawbacks here. The centralized exchanges command power over your assets, and the wallets contained in your account are owned by them, and not you. This gives them the power to seize your assets, freeze your account or impose new regulations upon you at any time.
Once your funds are in their system, they can even force you to provide further documentation before releasing them. Some traders have also found that some less reputable options can vanish overnight with their funds.
Decentralized exchanges are not controlled by one person or entity, instead, they are often powered by nodes, and that gives more freedom to them. While the volume is not quite up to par with larger, more centralized institutions, many investors are finding that if they want to trade without the obtrusive red tape that cryptocurrency was meant to prevent, they will need to utilize these types of exchanges.
If you live in a country where it is hard to be approved for a trading account, then this is likely the best option for you. Likewise, if you are a privacy advocate, interested in preserving your anonymity, and not allowing a third party access to your funds, then this will be a good option for you too.
Security is another big factor that investors should consider. A decentralized option often gives you the private keys to your own wallets, they belong to you, and if the company vanishes, you’ll be able to restore those wallets elsewhere. This is ideal, and a platform like CryptoBridge, even offers a desktop client/wallet so that your assets never need to go through a web browser, which is easily phished.
However, if you do need to use a centralized exchange that operates through a web interface, then you should look for security options to protect yourself. At the bare minimum, the website should have at least one 2 factor option, but preferably multiple ones. This prevents someone who happens to phish your password from accessing your account funds. Some also utilize optional pin numbers or security applications for better safety.
Do they use cold storage? This is a method of storing coins which takes them out of the hot exchange wallets and places them into safer offline storage where they can’t be hacked. Most reputable exchanges will utilize this for most of their assets until they are needed.
Before choosing one, it would be wise to look through their FAQ documents to see if they have verified their security procedures, but investors would be wise to never leave a large amount of these funds on any provider, no matter how good they say their security is.
It doesn’t matter how good an exchange is if they don’t have the assets available that you want to trade. Investors should be able to easily scrutinize the markets and trading pairs available for the platform without even making an account. Take a moment to familiarize yourself with their available coins or tokens, and their base currencies.
A base currency is a coin you will be trading against. For most people, this is Bitcoin, but there are other options which could be utilized. Depending on your country, you may even be able to find a service that has a pairing in your own fiat currency, which will be very convenient. Keep in mind though that exchanges that offer this will have the most rigorous verification procedures.
If most of your assets are available on the exchange of your choice, then you may be able to supplement the few that aren’t with a quick swap type of exchange such as Shapeshift or Changelly, which often list some tokens as well, and can be good for smaller holdings or quick swaps.
Investing with your government issued currency is convenient, but it can also be a headache. Especially if your bank is being troublesome about cryptocurrency purchases. An exchange that deals in government-issued currency will also put up much higher walls to entry. It’s not because they want to, but because the governing bodies associated with these currencies force them to.
If you don’t want to deal with all of this, then it might be a better idea to purchase your initial cryptocurrency with cash from something like LocalBitcoins, before moving on to an exchange for acquiring other assets. This also gives you the option of purchasing your crypto privately.
Believe it or not, exchanges do not charge uniform fees. In fact, some of them have left a bad taste in trader’s mouths for raising their fees to exorbitant levels. This information will typically be hidden fairly well, as many of them are not upfront about it.
However, after some digging in the FAQ you should be able to find out what they are. Try to compare them to some competing options in order to get yourself the best deal. While the percentages don’t seem like much at first, they can add up for large or frequent trades, quickly robbing you of your profits.
Liquidity is the amount of available assets present on the exchange for a particular pairing. If there is not enough liquidity you could find that you will be paying over market value for your assets in comparison to other exchanges.
This is a big problem for smaller exchanges, and you should make sure to compare prices before making any purchases where there is a very small order book. A tiny order book can also create delays in completing your trades if there are not enough sell orders to fill the buys or vice versa.
Some cryptocurrency exchanges have atrocious customer support. They work just fine when they are actually working, but when they don’t traders cries for help can go unanswered for weeks at a time. While it’s hard to evaluate this metric without first experiencing it, if you go to their social media pages you’ll often quickly find out if users are unhappy with customer support or not.
Or you could also send a quick email about something account creation related to see how long it takes them to answer you. If you’ve waited 3 days or more with no reply and good customer support is important to you, then you’ll likely be able to make your own decision as to whether it’s time to move on to your next candidate.
In closing, there are many things that investors must consider when choosing a cryptocurrency exchange, and it’s worth your time to learn these things before you deposit any money. For example, many exchanges will allow you to deposit money without verification, but then will force you to verify in order to withdraw it! If anything about an exchange is unclear, it’s often a good idea to ask around in their various social media channels, as someone can likely answer your question, even if the support team does not.
Even if an exchange looks like a great choice, you should still remember that it’s in your best interest to not keep too many assets here. If they go out of business, or a governing body steps in, your assets could be seized, and there’s no telling when or if they will be returned to you. Practicing proper financial safety can only benefit investors in the long run.