A cryptocurrency exchange is a place to buy, sell and trade crypto. Some exchanges also offer derivatives products so that users can trade options and futures.
The problem for people just getting into crypto is that it's not so easy to determine which cryptocurrency trading platforms are good and which should be avoided.
There are dozens of digital currency platforms but which one is the best?
In this article rather than answer that question outright, we'll give you all of the tools that you need to figure it out for yourself. This is especially useful as not every person will have access to the same exchanges.
Europeans and Asians tend to have great access to cryptocurrency exchanges while Americans are banned from many platforms. That's why figuring out the best place to trade can take some time. With that being said, let's get started.
The first thing we'll look at are all of the different types of cryptocurrency exchanges.
How to Choose the Best Exchange
There are a lot of factors that go into choosing the best cryptocurrency exchange. Before you sign up for your first exchange here are some things that you should consider.
Trading on a Spot Exchange
When people think of a cryptocurrency exchange what they're typically thinking of is a spot exchange. This a place where traders can exchange one asset for another. For instance, trade Bitcoin for Ethereum.
Every spot exchange has different cryptocurrency trading pairs so the exchange you sign up for may depend on what cryptocurrencies you can trade there. For instance, if you only want to trade Ethereum / Litecoin, for example, then you can sign up for almost any exchange as they all have access to these coins.
However, if you want to trade a more exotic coin, like Nano or Monero, then you'll need to find a one of the cryptocurrency exchanges that has this trading pair.
Trading on a Derivatives Exchange
A derivatives exchange ( like the ICE backed crypto exchange Bakkt) offers trading options like futures contracts or options. These are typically financial products for more advanced cryptocurrency traders. However, if you're already familiar with these products from traditional financial markets then it may make sense to trade them on a cryptocurrency exchange platform.
In some cases a spot exchange will also offer derivatives products so that you can do all your trading in one place. However, the most popular derivatives exchange with the most trading volume are usually standalone platforms. That is, they offer nothing but derivatives trades.
One thing worth mentioning, many derivatives crypto exchanges offer margin trading and in some cases extremely high margin trading, as high as 50x or 100x. It's not recommended to use leverage this high as it's extremely easy to lose money and it's more akin to gambling then actually trading. Nonetheless certain crypto exchange platforms do offer this kind of leverage if that's something you're interested in.
Custodial vs. Non-Custodial Exchange
The largest different between trading crypto and trading traditional financial markets is that with crypto you can custody your own funds. At any time you can withdraw your crypto from an exchange to a wallet that you control. For security we heavily advise you to do so! But more on that later.
The difference between a custodial and non-custodial exchange platform is simple. A custodial platform stores your cryptocurrency while a non-custodial exchange does not.
For instance, with a non-custodial exchange you input the trade you'd like, send the platform the crypto and then they'll send you back the exchanged coins immediately. No cryptocurrency is stored on the platform so that there can be no chance of it being lost or stolen.
Non-custodial exchanges work best for smaller trades or for trading when you don't want to register on a cryptocurrency exchange sites. However, non-custodial trading fees tend to be higher and they offer less functionality than a regular crypto exchange
Determining Volume on an Exchange
Figuring out the trading volume on an exchange is no small task. Many of the less reputable crypto exchanges engage in wash trading and it can be difficult to know what their actual trading volume is.
For instance, the press widely accepts the trading volumes reported by CoinMarketCap as truth even though these are wildly inflated. As of publication, for example, CMC lists the Bitcoin 24 hour trading volumes as $37 billion which is about 25x higher than what more reputable websites claim the volume to be.
To determine whether an exchange actually has high liquidity it's better to use websites like Messari or BitcoinTradeVolume. These report accurate trading numbers by not including data from exchanges known to engage in wash trading.
What to Look out for When Registering for a Digital Currency Exchange
It's always a good idea to research the reputation of a trading platform before you sign up to trade there. Some of the best cryptocurrency exchanges have excellent reputations and take security seriously. Other coin exchanges are just out for some quick profit and they don't do much to keep their Bitcoin traders safe.
In your research try to find out whether the exchange you're considering registering for has a good user interface, whether they have a customer support center and whether they actually answer inquiries sent to their customer support center.
Also, consider how long a digital currency exchange has been around. The longer they've been in the space the more likely it is that they have a good product and take security seriously.
Buying Crypto on an Exchange
Since the crypto market hit its low in December of 2018 there has been a renewed interesting in the purchase of cryptocurrencies. A lot of people want to know how to buy Bitcoin, and also how to buy altcoins using a variety of different payment methods.
In this section we'll explain how to find the best cryptocurrency exchanges to buy crypto on and how to get started with your investing. As with everything else in crypto there are lots of options to choose from.
Bank Deposits and Wire Transfers
The cheapest way to buy Bitcoin or any other crypto is usually with a bank account. That is, by linking a bank account with a cryptocurrency exchange and then depositing money into that exchange. This method often has the lowest fees.
Many of the best cryptocurrency exchanges, the exchanges with the best reputation, will offer the option to use your bank account. However, you should research an exchange before submitting your banking information to make sure it's safe.
The disadvantage of buying with a bank account is that it can take days to fund the account. In the wildly volatile crypto market that could mean that you end up paying a lot more for a coin than the price when you began the bank transfer. That's why you may want to consider pre-funding an account before you're ready to buy Bitcoin, so that when you do want to buy the money is already there.
A wire transfer is another option, however, some exchanges charge high fees for wire transfers. A wire transfer may also incur fees from your bank so this is typically not the best way to send money to cryptocurrency exchanges.
Using a Credit Card
A credit card is another way to buy crypto. Unfortunately most major exchanges have stopped accepting a credit card as a valid payment method. Some exchanges and wallets still accept credit cards though so they're still possible to use.
For credit card purchases the best way to buy crypto is actually through a cryptocurrency wallet that allows for a credit card as a payment method. There are many wallets that have this function and they're the best way to use credit cards to buy crypto.
Some cryptocurrency exchanges also allow you to use credit cards so you should check if the exchanges that you're registered on offer this option.
One thing worth noting is that using a card to buy crypto often incurs a lot of fees. In fact it's probably the method with the highest fees out of any of any of the payment methods we'll discuss in this article. That's why a better option is to use a debit card.
Using a Debit Card
Most major cryptocurrency exchanges allow traders to use a debit card as a payment method. Using a debit card incurs higher fees than using a bank deposit but also lower fees than using a credit card.
One advantage of using a debit card on Bitcoin exchanges is that with a debit purchase the crypto is typically available immediately, you don't have to wait for the payment to clear the way you do with a bank deposit. Using debit it's usually possible to have crypto in your wallet in just a few minutes.
A little bit of research should tell you the best cryptocurrency exchanges that accept debit cards in your country. Also, it's important to talk to your bank about using a debit card on a cryptocurrency exchange. Some banks do not want their clients to have anything to do with cryptocurrency exchanges and in extreme cases a bank may actually cancel an account for someone who buys Bitcoin.
Determining Fees on an Exchange
Every cryptocurrency exchange has different fees. Some charge high trading fees and low withdrawal fees. Other exchanges have good crypto-to-crypto exchange rates but charge a lot for withdrawals. And the best cryptocurrency exchanges have everything: a good trading fee schedule and low withdrawal fees.
Depending on how often you're going to withdraw and how much you're going to trade, the best trading platform will be different for everyone. Be sure to look out for hidden fees as non-custodial exchanges in particular tend to have hidden charges.
Security is incredible important in the cryptocurrency industry. Billions of dollars worth of cryptocurrency have already been stolen and the sad fact is that more will be stolen in the future.
In crypto you're responsible for keeping your funds safe and even one of the best exchanges can get hacked. That's why this section is especially important to pay attention to.
Not Your Keys, Not Your Crypto
Not your keys, not your crypto is a famous saying in the cryptocurrency ecosystem. Essentially what it means is that if you leave your crypto on an exchange, or on a wallet that doesn't give you a private key, then you don't really control your crypto. At any time the platform that you've stored your Bitcoin or Ethereum on can take control of your coins.
This was recently a large problem with the Canadian exchange Quadriga where the founder died and subsequently nobody else was able to access the funds stored on the exchange. The result was that all of Quadriga's traders and investors ended up losing millions of dollars.
Hacks are also a large problem in the blockchain space and even the leading cryptocurrency exchanges can be affected. In fact hacking crypto exchanges is a full time business for some and North Korea has a dedicated team of crypto hackers.
So what can you do to protect yourself? The following are a few ways to keep your coins safe.
Two Factor Authentication
By far the most important thing that any trader or investor can do to protect themselves while they're using a cryptocurrency exchange is to enable two factor authentication.
Two factor authentication means that in order to login a user must submit a password and some other form of verification. That could be a temporary password sent to a cellphone or email address. It could also be a onetime password generated by Google authenticator.
It's widely agreed that Google authenticator is the best way to protect your account as it has a large advantage: a code can only be generated from a single phone. For example, an email address can be hacked and the code intercepted. SIM swapping is also common. Google authenticator, however, is linked to a single phone so the only way a thief can get the code would be to steal your cellphone.
Some exchanges even have three factor authentication. For example, a password, a Google authenticator one time password and a password sent to your email. The more security the better. Even if it's a hassle to log in to your account that's a lot better than having funds stolen.
Why You Should use a Hardware Wallet
While two factor authentication is important, the best way to protect yourself is to simply not keep your coins on an exchange. The safest way to store your coins then is to use a hardware wallet like a Ledger or Trezor.
A hardware wallet is great because the only way that funds can be sent from it is by pressing a physical button on the device. Because of that feature it's possible to plug a hardware wallet in to the world's most infected computer and as long as you don't press a button on the device to approve the transaction, the crypto cannot be stolen.
One thing worth noting in regard to hardware wallets is that not all hardware wallets support the same coins. Before you buy a hardware wallet then you should check to make sure that it supports the currencies you plan to trade.
What is Tether and why does it trade on so many Bitcoin exchanges?
Tether is one of the oldest stablecoins and is by far the most liquid (highest trading volume) out of all of the stablecoins. If an exchange is only going to trade a single stablecoin it's usually Tether, especially a Tether / Bitcoin pair.
It's worth talking about Tether because it's a highly controversial coin. While Tether is supposed to be backed 1:1 by physical dollars in a bank account the unfortunate truth is that this is not the case, Tether is only about 70% backed by dollars. At least, that's what most people think... It's very hard to separate fact from fiction with Tether.
Is it safe to use? Probably for most trades Tether is safe to use. However, what Tether is not safe for is storing funds. At any point Tether could "implode" and people with a bunch of Tether might find that their coins are suddenly worthless.
How an Order Book Works
An order book is a way to see how many buy and sell orders there are at a certain price level. An order book works because crypto traders set limit orders which go on the book.
For instance, a trader could create a limit order which stipulates that they'd like to buy 1 Ether at $300. If the price reaches that level then the 1 Ether will be automatically be bought at that price. The same works in reverse for selling.
A deep order book is one in which there are lots of buy sell orders. Typically the best exchanges have deep order books. A deep order book might not matter much to the average retail trader, however, it's important for large scale traders and investors who want to clear large orders without moving the price.
Complying with Regulations
Although the cryptocurrency ecosystem has traditionally been less regulated than traditional markets that is changing rapidly. Cryptocurrency exchanges are coming under increased pressure to comply with regulations, even those that don't make much sense.
One of the most common regulations that you'll see when looking at a list of cryptocurrency exchanges is all of the countries whose citizens cannot use that exchange. Unfortunately this ban on cryptocurrencies traders often includes Americans.
Many Americans, however, have figured out that they can use a VPN to circumnavigate the geo-ban by convincing the cryptocurrency exchange that they're from a different country.
The problem with this is that if the exchange ever detects that you're using a VPN to access the exchange from America, they can delete your account and keep your crypto. That's a large risk to take and it's much better to follow regulations.
Why are so few exchanges available in NY state?
It can be especially difficult to get started for American traders from New York. That's because New York state has a special regulatory requirement called a BitLicense and crypto exchanges can't operate in the state without it.
Unfortunately, the application process for a BitLicense is long, complicated and expensive. That's why some cryptocurrencies platforms decide to not even bother applying and thus they don't serve New York customers.
The good news, however, is that New York is aware of the problem and changes have been proposed which would make it easier for exchanges to get started in New York.
Can I trade futures?
Yes, certain spot exchanges also offer futures trades. As already mentioned, however, it's important to understand all of the risks of trading futures, especially the risks of using margin.
Also, futures trades often have different trading fees than regular spot trades. For example, it's common for the market taker to pay a fee while the market maker receives a rebate. That is, the market maker actually receives a small bonus for trading.
Finally, it's important to understand the difference between perpetual swap futures, which have no expiration date, and regular futures products which have an expiration date. While most exchanges have perpetual swap futures, some also offer traditional futures products.
Why is high liquidity important?
High liquidity is important because it means that you can execute your trade at the price you want without worrying about slippage. Slippage happens when the order book is not deep enough so that your trade doesn't go through at the price you want.
All things being equal high liquidity exchanges also tend to be more reliable. Market makers (whales) provide a lot of liquidity and they usually only trade on the most secure exchanges.
What's the difference between a market buy and limit order?
While there are many different order types, market buy and limit orders are by far the most common. They're also the only type of orders that most cryptocurrencies traders will need to know about.
A limit order is when you submit an order to buy or sell Bitcoin, or any other currency, at a specific price. The order will go only through if the Bitcoin hits that price and the advantage is that you know exactly what price you will get for your trade. There are no surprises.
A market buy or sell, however, means that the Bitcoin platform will submit the order and clear it at any price. In an extreme example you could market sell Bitcoin at $10,000 but with rapidly falling prices you might end up selling half the order or more at $9,900.
This is unlikely to happen to most retail Bitcoin traders as small market orders typically clear almost instantly. However, the more volume you transact the more likely it is that a market order will clear at a different price than when you submit it.
What is an exchange-based token?
Many exchanges have their own exchange-based token. That is, a token that can be used on the platform for a variety of purposes. The most common use for an exchange-based token is a reduction in trading fees. For instance, someone who holds 1,000 of Exchange Y's token might receive a 25% discount on all trading fees.
Of course that also leads to a lot of speculation. If traders think that a particular exchange will become more popular in the future they may buy up the exchange token so that they can sell it for a profit later when demand is high.
Some exchange-based tokens are also used to support IEOs (Initial Exchange Offerings). An IEO is similar to an ICO except that it happens on an exchange platform. Because of that the expectation is that IEOs are of a higher quality than ICOs as the exchange screens all projects and doesn't allow scams.
Finally, some exchange-based tokens may even be used as payment methods outside of the exchange. That really depends on how popular the exchange is, however, and how much they can promote their token.
Can I buy Bitcoin locally?
In some cases it is possible to buy Bitcoin and other cryptocurrencies locally. Although some popular local cryptocurrency exchanges have shut down lately new ones are always appearing. They might not have the best user interface but they tend to work alright.
It's important to take proper security precautions when buying Bitcoin or any other cryptocurrency locally. Research the exchange and only buy from a trusted seller. Also, make sure to understand what the fees will be before committing to a purchase.
What's the difference between a centralized and decentralized exchange?
A centralized exchange is a "regular" exchange which is controlled by a single company or organization. All of the most popular cryptocurrency exchanges are centralized and they have the most trading volume, not only in Bitcoin but for all cryptocurrencies.
A decentralized exchange is one that runs on a blockchain and lacks a centralized, controlling authority or organization. The cryptocurrency exchange enforces its rules via a smart contract.
Unfortunately decentralized exchanges are still in their infancy and even the best platform cannot offer all of the features of a good centralized exchange. Also, decentralized exchanges tend to not have very many trading pairs.
The advantage of a decentralized cryptocurrency exchange is that they never store user funds so that hackers cannot steal anything. Also, decentralized exchanges tend to have lower fees than centralized exchanges. If you can find a decentralized cryptocurrency exchange with low fees and good trading pairs it may be worth checking out.
Do most exchanges have good customer support?
Some exchanges are known for having excellent customer support while other exchanges have almost no customer support. Before registering for a Bitcoin exchange it's a really good idea to check out client testimonials about the exchange's customer support center.
When in doubt, a good rule of thumb is that American based exchanges tend to have better customer support than Asian based exchanges.
How volatile is the cryptocurrencies market?
The cryptocurrency market is really a volatile place. It's not uncommon to see price swings in one week that, percentage wise, would be considered high for a full year in the stock market! It's really important to keep that in mind as you start to trade on a cryptocurrency exchange.
While there will be plenty of exceptions, as a rule of thumb Bitcoin is the least volatile out of all of the cryptocurrencies. It's the oldest and most secure cryptocurrency and the result is that it's a less risky asset to invest in.
Many people feel that trading altcoins on an exchange can offer superior returns, as compared to Bitcoin. It's important to note, however, that many altcoins have already failed or will fail in the future and the large returns associated with investing in them is a result of the risk.
Is it OK to use a mobile app for trading?
For the most part it's fine to use an exchange's mobile app to buy and trade cryptocurrencies. Many apps have a really good user interface and they may actually make it easier to trade as opposed to using the platform website.
One consistent problem, however, is with new mobile apps. Many times when an exchange releases a mobile app for the first time it can be buggy and not the best experience. That's why it's a good idea to wait a few months after an app comes out before you begin to use it.
Typically mobile apps have the same trading fees and withdrawal fees as the Bitcoin exchange.
Do I have to go through a KYC verification?
That depends on which exchange you're trading on. Some cryptocurrencies exchanges have a mandatory KYC program while other exchanges have no KYC at all.
Most exchanges, however, fall somewhere in the middle. They will allow traders to trade and withdraw very small amounts of crypto without KYC. Larger withdrawals will require the trader to verify their identity via KYC.
While it may be tempting to only trade on an exchange without any KYC it's important to remember that non-KYC exchanges tend to be less reliable. Bitcoin exchanges without any KYC often have worse customer support and may even charge higher trading fees.
Time to Start Trading
Now that we've covered just about everything there is to know about trading cryptocurrencies on an exchange you're ready to go out and start trading! With lots of Bitcoin exchanges to choose from it's important to select the right one. Hopefully this guide will prove useful in doing so.
Above all else the most important thing to remember is to keep your Bitcoin and other cryptocurrencies safe. Even the most secure platform can get hacked and that's why it's advisable to regularly move your cryptocurrencies from an exchange to a hardware wallet.
While doing so many incur some withdrawal fees that's a small price to pay for ensuring that your Bitcoin doesn't get stolen. Other than that just check the reputation of the exchange you're about to trade on. Reddit has one of the best crypto communities online, as does Bitcoin talk.
Now that you know how to find the best cryptocurrency trading platforms we wish you good luck with your trading!