The Ultimate Guide To Exchanges
If you are looking to trade cryptocurrencies, it can seem like a bit of a minefield. Since Bitcoin began trading in 2009, there have been many other cryptocurrencies that have burst onto the scene, all promising something bigger and better. Many people choose to use a cryptocurrency exchange, which will help you to find the best platform for all of your needs.
What is a Cryptocurrency Exchange?
We’ll begin by explaining what a cryptocurrency exchange. To put it simple, it is a website, where you can buy, sell and exchange cryptocurrencies for other digital currencies and traditional currencies. If you are looking at trading cryptocurrencies in a professional capacity, you will likely have access to more trading tools and will use an exchange to verify your ID and to open an account.
However, if you are a casual trader, who is just looking to make a few simple, and straightforward trades, there are a number of platforms that you can use, which will not require an account.
Different types of Exchanges...
In order to make the best decision as to what exchange you are going to use, it is important to understand the different types that are on offer to you as a trader. There are three main types of exchanges that you will most likely come across. These are:
- Trading Platforms
- Trading Platforms are websites that are designed to connect buyers and sellers. It works via a software which investors and traders can open, close and manage market positions. Trading platforms will take a fee from each transaction or for making a specified number of trades each month.
- Direct Trading
- Direct trading is also sometimes referred to as direct-access trading, and is a platform that specifically offers direct person to person trading. Individuals and stock traders can trade directly with other individuals, market makers or specialists from different countries. Direct trading exchanges do not have a fixed market price, and instead, each individual seller will set up their own exchange rate.
- Finally, we look at Brokers. These are websites that have been set up to allow anyone to visit and buy cryptocurrencies at a price, which is set by the broker. Cryptocurrency brokers work in a similar way to foreign exchange dealers.
What you should look out for:
It is so important that you do your homework before you start trading to ensure that you are using the right exchange for you. Although of course it is all personal choice as to which exchange you ultimately choose, we have comprised some helpful guidance and hints and tips of certain aspects to look out for and be aware of, to help you in making the best decision possible.
- One of the most important aspects to think about before you make any decisions is their reputation. Have you heard of them, and do others recommend their service? Reputation is one of the most reliable ways of getting a feel for an exchange. If you hear that people have had a bad time when using this exchange, it might be worth avoiding them; particularly if there are a few who all have had similar experiences. If you are struggling to find one, it can be really useful to visit forums where people can share their own personal experiences. It is also a really great chance for you to ask any questions that you might have.
- Geographical Restrictions
- Some exchanges may have geographical restrictions, and it is worth finding this out prior to including them into your search. Some functions that are available on exchanges are only accessible from certain countries. So, to get the most from the exchange that you choose, and to gain access to all platform tools and functions, be sure that it is all available in the country that you are living in.
- Exchange Rate
- Different exchanges will have different rates, so in order for you to get the best deal, it is important that you swap around. Most people would shop around to find the cheapest product, so treat your cryptocurrency exchange in the same way. It is not unheard of for rates to fluctuate up to 10% and even higher in some instances. So, the bottom line is that you can save yourself a whole heap of money if you shop around and find the best exchange rate.
- Just like shopping around for the exchange rate, it is important to ensure that you properly check the fee-related information before opening an account. If there is anything that you do not understand, it is not worth using the exchange. Before you join, make sure that you full understand the deposit, transaction and withdrawal fees. They will change, depending on the exchange you choose to use, so yet again; shop around.
- Payment Methods
- Before you sign up to any exchange, make sure you have checked which payment methods are available. Can you use credit or debit cards? Wire transfer? PayPal? Check to see how limited the payment options are, as this could influence your decision. If there are only limited payment methods that you can use, it might not be convenient for you, so it is always best to check. It is also worth remembering that if you choose to purchase cryptocurrencies with a credit card, you will have to verify your identity, and the fees will generally be higher. This is because there is a higher risk of fraud, as well as a higher transaction and processing price. Likewise, purchasing via a wire transfer will take a lot longer as well, as the banks take significantly more time to process these transactions.
- Verification Requirements
- When you purchase anything on a cryptocurrency exchange you will have to confirm some form of ID verification. These will differ depending on the exchange that you choose, so it is important that you research these properly and decide what is important to you. Some exchanges will allow you to remain anonymous, whilst others do not. Don’t be frustrated with these verification steps though, even if they take a bit of time, as they are all there t help prevent you from money laundering and scams.
Some of the best exchanges on the market:
We have highlighted just three of the most popular exchanges that are on the market. Please note though that this list is not exhaustive at all, and there are many others, which is why it is so important that you carry out your own research before you commit to one. The following are simply to provide you with some examples of where you can start.
- As the name suggests, it will probably come as no surprise that Bitstamp is a Bitcoin exchange that is based in Luxembourg. In fact, it was the first fully licensed Bitcoin exchange in the EU. Bitstamp allows trading between USD currency and bitcoin cryptocurrency; however, it also allows USD, EUR, Bitcoin, Litecoin, Ethereum and Ripple deposits and withdrawals.
- Trading via Bitstamp is not only incredibly easy, but it is also instantaneous. All major credit cards are supported and accepted and once an account has been created, it allows you to trade instantly. What’s more is that there are no hidden fees, so you know exactly what it is you are paying for. Security is also a big factor for Bitstamp as well, which is why 98% of digital funds are stored offline and are subject to a yearly audit by one of the Big Four.
- This popular exchange also allows you to execute instant orders at the best bid price, as well as place limit orders. Anyone from around the world can buy and sell Bitcoins through API or the Tradeview trading interface. It has been made even easier as well, thanks to the Bitstamp mobile phone apps, which are available on both iOS and Android, which allows customers to trade their Bitcoins on the go.
- Coinbase exchange is based in San Francisco, California and it allows its customers to operate exchanges of Bitcoin, Ethereum, Litecoin, amongst others. They have plans to add more currency pairs as well; as soon as banking arrangements are secured.
- What makes Coinbase stand out from others is that it has seamlessly integrated its wallet and exchange features that you can now fully access on both Android and iPhones. This is causing Coinbase to increase significantly in popularity and is rapidly sending it to become an industry leader.
- If you are looking for an exchange that is hot on security as well, Coinbase is for you. Similarly, to Bitstamp, they store the majority of the digital assets in secure offline storage. There is a two factor authentication on all accounts as well, along with other added verification features which will ensure that your account does not become attacked by bugs. All digital currencies that are stored on the servers are covered by Coinbase insurance policy as well for added security and peace of mind.
- As a customer, you have full control of all of your private keys, and once an account has been created, it allows you to start sending and receiving cryptocurrencies immediately.
- The Gemini exchange got its name after the two founders, who happened to be twins. It is an exchange that is based in New York, and upon the launch, it only allowed US citizens to open accounts.
- Despite its popularity, it actually differs to many other exchanges, as it applied for status as a New York State limited liability Trust, as opposed to a Bitlicence. This allows the exchange to then deal with institutional clients and individuals.
- It has gained such a good reputation by being considered one of the most well positioned exchanges to capitalise on the bridge between the main financial markets and the present ecosystem.
- They have very low deposit and withdrawal fees as well.
References And Further Reading:
- World Economic Forum; Why Bitcoin exchanges aren’t as straightforward as they seem.
- Coin Persuit; BitStamp – Trade Bitcoins with style
- Stockstotrade; Welcome to the Crypt: What you need to know about Crypto Exchanges
- Coindesk; 3 Signs the Cryptocurrency Exchange Market is Maturing
- Gemini; Gemini
- Coinbase; Buy and Sell Digital Currency
- Bitstamp; Go for the digital currency stars