Different crypto exchanges have their advantages and disadvantages. In this article we cover the basics you need to know before registering with an exchange.
Crypto exchanges are not much different from forex exchanges. They are a medium between cryptocurrency traders. Thus, their main function is to match currency buyers and sellers when the conditions of both are met.
It’s as simple as that.
The major differences between crypto and forex exchanges is that crypto exchanges usually charge lower fees and they are open 24/7. They don’t have business hours and don’t close for the weekend. You can trade anytime you want.
First things first: How to register?
This part is straight forward.
You register with the exchange of your choice, link your credit card or your bank account and fill in the documentation. It’s usually better to use your bank account, because fees are typically lower compared to credit cards. On most exchanges you will also have to provide an identity document to proof that you are who you claim to be.
Done? Congratulations: You can now buy any crypto coin that is being offered on the exchange and you can use your coins to buy other cryptocurrencies. If you want to get fiat money back, you can sell your coins and redeem cash.
How to choose the right exchange?
The basic features for crypto trading are the same on almost every exchange. You can execute buy and sell orders, and most exchanges allow you to use stop limit orders.
Most crypto exchanges also allow you to leverage your investment by using margin, hence, borrowing money from other users or from the system.
While the basic functionalities are mostly the same, other features vary across exchanges, for example analytics tools. Also, user interfaces are different. It makes sense to look at different interfaces first and choose one that you find easy to use.
Trading volumes vary depending on the exchange. Low liquidity comes at a risk, because you may not be able to execute an order quickly.
While crypto trading is still unregulated in many countries, some have already put regulations in place. Therefore, the jurisdiction in which your exchange is licensed will have an impact on your trading capabilities and potentially also your tax situation (see tax situation in Liechtenstein).
This will be one of the main advantages of the Liechtenstein Cryptoassets Exchange (LCX). Liechtenstein’s Blockchain Act will create legal certainty for traders. It won’t happen that the authorities simply close the exchange, because the government has deemed it illegal overnight.
Fees and limits
Even though fees are lower compared to forex exchanges, you still have to pay. There is no free lunch. Some crypto exchanges charge no fees at all. But watch out for hidden costs, the devil is often in the detail.
Moreover, exchanges usually set limits on how much you can buy or sell within a certain time period. If you are planning on trading larger volumes, you want to know about these limits.
Security and support
Take a look at the exchange’s security features. Do they use two-factor authentication, anonymous sign ups, and complex captchas?
Also, what are your storage options? It’s always better if you store your coins yourself. Don’t give away your private keys. If you have to store funds on the exchange, your wallet might get hacked if the exchange gets hacked.
That’s risky! And it’s not as if that has never happened before.
Also, do they offer customer support? Customer support is one of these things that should be looked at. You don’t need it, until you need it. So better check beforehand.
A word about “decentralized exchanges”
Some exchanges advertise themselves as “decentralized exchanges,” meaning there is no central authority managing the exchange.
They offer lower transaction fees and enhanced security.
The truth is, while some exchanges are more decentralized than others, none are 100% decentralized. It doesn’t mean much. Don’t get irritated by marketing terminology. Instead, look at what services the exchange actually offers.
Good luck choosing the right exchange. Do your research and you won’t go wrong.