Choosing a crypto exchange isn't as easy as picking the first one you discover and trying them out.
I mean, you can do that, but I woulnd't recommend it.
There's a few key considerations you need to make before making your decision.
Why?
Because not all crypto exchanges offer the same features, benefits, and use cases. The one you choose should be specific to you and your needs.
You'll understand more as you continue to read this entry to the guide.
I will say I'm not giving you simple generic checklists that have hard yes and no answers. You'll need to think about how these areas pertain to you and your life and how they'll affect this decision.
I'll also take a moment to explain that this is not financial advice and we do not recommend any specific currency or exchange. Do your own research and act once you have the right information to make a decision you are comfortable with.
Jurisdiction is an important factor to consider when choosing a cryptocurrency exchange.
Before signing up, it’s important to make sure that the exchange you’re eyeing serves customers in the state and country in which you live.
This is because there are a lot of rules and regulations at play here, so if the answer is no, then you won’t be able to use the exchange in question.
In addition, some exchanges have website addresses specific to each country. For example, U.S.-based users might have to visit “exchange.us” instead of “exchange.com”. The primary example here is Binance vs Binance US.
The jurisdiction of an exchange reflects not only their target market but also where they are allowed to do business due to certain cryptocurrency rules and regulations.
Ease of use is an important factor to consider when choosing a crypto exchange.
For those who are new to trading, the complexity of some exchanges can be intimidating.
Order books and charts with lots of information can be overwhelming for someone just starting out.
To make things easier, many cryptocurrency exchanges offer “basic” and “advanced” views so users can choose the layout that best suits their needs.
Additionally, there are some exchanges specifically designed for beginners that have simplified interfaces and fewer features to avoid confusion.
For those who are more experienced in trading, ease of use may not be as much of a concern.
However, it is still important to find an exchange that has all the features you need and is easy to navigate. Many exchanges offer tutorials or other resources to help users get familiar with their platform before they start trading.
Taking advantage of these resources can help ensure that you have a smooth experience when using the exchange.
While not a hard and fast rule, our recommendation for newer traders is to start out on a centralized exchange that has a large user base.
These exchanges usually have a larger user base because they're easier and faster to use.
Security should be one of the top considerations.
Exchanges have been subject to numerous security issues in recent years, and holding coins on an exchange means trusting someone else with your money.
If the exchange gets hacked or an employee steals coins, investors can end up losing their funds entirely.
To determine which exchanges are the most secure, you should look for those that have been around for the longest time, have the most customers, and have had the least amount of problems.
Seriously, a quick Google search with something like "[EXCHANGE] hacks" will tell you a lot about their history.
You should also check out what kind of security features each exchange offers.
These might include two-factor authentication, cold storage wallets for storing large amounts of coins offline, and other measures such as encryption and regular audits.
By researching these features carefully before investing in any cryptocurrency exchange, you can help ensure that your funds remain safe and secure.
But to double down, we'd also recommend you look at...
Insurance is an important factor to consider when investing in cryptocurrency.
You can find a third party insurer to help secure your assets. But that's going to cost you some extra money.
Many exchanges offer insurance policies that can protect investors from losses due to hacks, employee theft, and other catastrophic events.
Coinbase is one of the most popular exchanges that offers various types of insurance.
Binance is another option that has a built in insurance fund for potential issues.
Investors should research the details of any exchange’s insurance policy before entrusting their funds with them.
Insurance policies vary from exchange to exchange, so it’s important to understand what type of coverage is offered and how much protection it provides.
Knowing the details of an exchange’s insurance policy can help investors make informed decisions about where to store their money and provide peace of mind in case something goes wrong.
This si a huge one for us as we focus on trust in the Web3 space.
Transparency is an important factor to consider when choosing a crypto exchange.
It’s essential for investors and traders to know exactly what they’re getting into before committing any funds.
This means understanding elements like...
If an exchange is evasive about these details or fails to provide clear answers, it could be a sign of a lack of transparency and should raise red flags.
Given the number of scams and hacks that have occurred in the crypto space, it’s essential for investors and traders to take transparency seriously.
You should thoroughly research any potential exchanges before committing their funds.
This includes reading reviews from other users, asking questions on forums or social media platforms, and checking out any relevant regulatory information.
one of the biggest issues we see with the negative reviews of crypto exchanges here is to do with their customer support.
If you're investing your hard earned money and something goes wrong, you want to know that there is someone who is able to help you.
Newer users might have questions regarding the basics of crypto and how the exchange works, and it’s good to know that they can get quick help if needed.
Investors should look into the reputation of an exchange’s customer support service to ensure that they respond quickly and that customers seem generally satisfied. Quick responses with no resolutions help no one.
Crypto markets move quickly, so waiting days for a response from customer support could have real financial consequences.
It’s also important to make sure that the exchange makes customer service a priority.
This means having multiple channels for customers to reach out with their issues, such as email, phone, or live chat.
It also means having knowledgeable staff who can provide helpful advice and solutions in a timely manner.
This is important, but becomes more important the more often you trade or the larger amounts you trade.
Exchanges make money by charging fees on most or all transactions, so it’s important to understand what you’re being charged for each transaction.
Some exchanges have their own native “exchange tokens” that can be used to get discounted trading fees.
For example, if a Binance user holds Binance Coin (BNB) in their Binance wallet, they would likely pay lower fees than someone who doesn’t hold any BNB.
But, don't be drawn in simply by the token. Take the time to look at the fee structure and think about what it might do to your funds.
If you're paying high percentages on every trade and you trade a lot, even a marginal discount from holding an exchanges coin won't help too much.
It’s important to do your research before signing up with an exchange and making any trades.
Make sure you understand the fees associated with each trade and whether or not holding a certain token will give you access to discounted rates.
Liquidity refers to the amount of orders available in the order book, which allows traders to make trades at any time.
Without sufficient liquidity, it can be difficult or impossible for traders to find a trading partner and execute their trades.
This is especially true during times of high volatility, when prices can experience dramatic rises and falls.
In order for an exchange to have enough liquidity, it must have either a lot of users or users who hold large amounts of assets and trade them frequently.
If there are only a small number of orders available, then there may not be enough trading partners available.
This can lead to wide spreads between bid and ask prices, making it difficult for traders to get in and out of positions at favorable prices.
Basically, if you need to move fast to secure a good price but liquidity is low, you could miss the boat and lose money.
This builds on from liquidity.
When it comes to asset choices, it is important to make sure that the exchange you are using offers the assets you want to trade (and has adequate liquidity for them).
With thousands of different types of cryptocurrency in existence, no exchange can make trading pairs available for all of them.
Generally speaking, the higher market cap coins have a higher likelihood of being traded on popular exchanges.
This means that if you are looking for more exotic or lesser-traded coins, you may need to search out smaller exchanges (really you're going to want to go to DEXs for the really obscure coins).
It is important to do your research and have a wishlist handy when searching for an exchange that meets your needs.
You should also consider the fees associated with each exchange and the security measures they have in place.
Additionally, some exchanges offer additional features such as margin trading or derivatives trading which could be beneficial depending on your investment goals.
Assets are one side to the trading coin, the other side is what you want to do with them. You have to make sure that the exchange you choose has the feature set to help you achieve your goals.
Leverage is a popular tool used by traders on derivatives exchanges to increase their potential profits. Leverage allows traders to make bets with more money than they have in the exchange, which can result in higher returns if the trade works out.
However, leverage also increases risk and can lead to losses if the trade goes against them.
Derivatives exchanges offer a variety of products for traders to use, such as options and futures contracts.
Options allow investors to buy or sell a commodity at a future date for a set price, while futures contracts are agreements between two parties to buy or sell an asset at a predetermined price at some point in the future.
These products provide traders with additional ways to speculate on cryptocurrency prices without actually owning any coins themselves.
You have to make sure that the exchange you want to use offers the product/feature you need.
Most exchanges don’t have a minimum deposit requirement, but they do put limits on how much money a user can withdraw or deposit in a given timeframe.
This means that if you’re looking to move large amounts of money, you should be aware of these limits. For example, some exchanges might only allow users to withdraw $25,000 worth of fiat or crypto per day.
That being said, if you're moving huge amounts you should be able to organise something with the team and get onto their institutional plans.
It’s also important to remember that even the best cryptocurrency exchange app might have strict limits on the amount of funds that users can move within a specific time period.
This means that if you’re planning on HODLing for as long as possible, you may still want to make withdrawals at some point and should be aware of any restrictions that may apply.
Knowing these limits ahead of time can help ensure that your trading experience goes as smoothly as possible.
You want the experience of using the exchange to be pleasant and intuitive.
A good UX should make it easy for users to navigate the interface, find what they need, and understand how everything works without getting lost in settings and menus.
The best exchanges will have a modern feel, with clear labels and instructions that are easy to follow.
They should also avoid unnecessary jargon that could confuse users.
If you find yourself struggling to use the exchange or feeling overwhelmed by its complexity, it may be worth looking into other options that provide a smoother ride for users.
Cryptocurrency comes with a unique set of tax reporting requirements.
When it comes to taxes, your local tax agency will want to know about profits and losses you made trading.
Just like stocks and bonds, cryptocurrency trading profits are taxable.
Unfortunately, some crypto exchanges (especially ones based outside of your jurisdiction) do not have the forms or expertise needed for you to easily report your profit/loss. .
You will need to manually calculate your gains and losses using records of all your trades throughout the year.
This can be a time consuming process as you must keep track of every transaction made during the year in order to accurately report them on your taxes.
Take a second to search through the exchange and see if they have any forms or easily exportable information to help you more efficiently file your taxes.
Finally (but in our opinion most importantly), find out what other users of the platforms say.
You can read "expert" pieces like this one all day long. Generally, these are written by one person or a small tea,m of people who have similar experiences.
Which means these "expert" pieces are a little skewed.
But the combined, aggregated opinions and experiences of dozens or hundreds of users who have different use cases and needs can offer much deeper insight.
Make sure you check the reviews on third party review site (like this one) to help you find the best crypto exchange for your needs.
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