A crypto exchange is an online market on which to buy and sell cryptocurrencies. It works just like any other foreign currency market. The investors use the exchange to purchase cryptocurrencies and pay a margin on the sum they spend.
Choosing a safe and fair exchange is therefore one of the most important decisions for an investor. In this article, we’ll discuss how to choose a crypto exchange and what features to look for in one. Investors should use resources such as CryptoManiaks.com to stay informed about the crypto market.
It’s an exciting and developing market and any call you make needs to be based on recent information, as well as your best judgment.
Jurisdiction
The first thing to look for in a crypto exchange is the proper license that authorizes its jurisdiction in your country or area. There are a lot of rules and regulations involved now when cryptocurrency exchanges are allowed and commonplace. In order to operate in a certain country or territory an exchange needs to follow the laws in its jurisdiction.
The jurisdiction in which an exchange is allowed to operate shows what its preferred market is and the laws it’s ready to follow.
Simplicity of use
Buying and selling cryptocurrencies requires a lot of effort in terms of understanding the market and making educated calls. However, using the exchange shouldn’t be complicated. An exchange needs to have a simple interface that any user could understand and navigate and it should have measures in place to prevent purchasing by mistake.
It’s also useful if the exchange can be used via a mobile device alone, as it makes the process easier and allows the users to make purchases wherever they are.
Liquidity
A cryptocurrency exchange needs to be liquid. That way the users can make purchases or sales at any time. It’s accomplished by having enough trades every day. There are two ways to accomplish this: an exchange can have a lot of individual users making purchases or it can have a lot of purchases made by a relatively smaller user pool.
Cryptocurrencies are known to be volatile as their value isn’t tied to any of the traditional financial institutions such as national banks. During a volatile period, the exchange needs to remain liquid. It’s a way to mitigate risks.
What assets can you trade?
There are countless altcoins out there and some of them have unique features and markets that they cater to. However, not all crypto exchanges trade in all assets, as some cryptocurrencies aren’t yet established enough on the market. When looking for a cryptocurrency exchange, the investor should look for one that provides them with the most options.
Some exchanges also trade in traditional financial products such as bonds or securities. This doesn’t mean that an investor should always go for an exchange that trades with the most assets. The decision should be made based on your needs and preferences.
Security measures
Trading cryptocurrencies online comes with risks involved. Since cryptocurrencies don’t have a centralized structure behind them – transactions need to be authorized using a security key. Most exchanges use what’s called “cold storage” to protect these keys. This means they are kept offline in a hard drive that can’t be hacked since it’s not connected to the internet.
There’s also a matter of providing your personal data and ID to trade with cryptocurrencies. Exchanges need to have measures to protect the identity of their users and some allow completely anonymous trading.
Fees
Crypto exchanges make their living by charging fees for trading. These are the hidden costs of buying and selling cryptocurrencies. An investor needs to be aware of these as they cut into the profit marking. In most cases, the exchange will take a percentage out of each trade, but some also have flat fees.
Some exchanges provide their own cryptocurrency tokens. Investors earn these as they make purchases and sell. These can be used to buy, sell, or store value just as any other token. It’s up to the investor to determine if it’s a valuable enough proposition.
Customer support options
Most cryptocurrency exchanges operate without an actual office or a place of business and they are often licensed in off-shore zones to avoid complicated regulations. This means that customer support is the only way for users to contact the exchange and complain about an issue they are having.
A good customer support system offers multiple channels through which to contact the exchange, one that’s available 24/7, and staffed by experts. For the most part, the exchange should be reachable by email, chat, or phone. It should also operate in multiple languages as crypto markets are global.
Limits on deposits and withdrawals
All cryptocurrency exchanges have limits on how much a user can deposit and withdraw at once or in a given period. There are both minimum and maximum amounts one can transfer and it can be limiting to some investors. In most cases, the exchanges have a daily limit.
Before choosing which exchange to use, an investor should have a rough idea about what their budget is and how much they plan to trade, make, and withdraw. After a while, some investors move on to a larger exchange, once the limits become too constraining. It’s also important to keep in mind that smaller exchanges often charge higher fees, so it’s a matter of balance between the two.
Insurance policies
Some exchanges offer an insurance policy that will cover a portion or all of their funds. The policies cover theft and technical issues that may lead to loss of funds. The crypto industry is still new and somewhat small, and it tries to stay away from traditional financial institutions, meaning most still don’t have this option.
It’s an additional expense for an investor as well, but it does come with the benefit of knowing you’ll be covered if something happens. It’s usually the larger exchanges that offer such a policy.
Overall reputation
In the end, the investors should be aware of the overall reputation the exchange has in the industry. There are online resources that investors can use to find out how those who are familiar with the market are satisfied with the exchange.
For the most part, the wisdom of crowds can be useful when choosing a cryptocurrency exchange. If many users are claiming that something is wrong with the exchanges chances are that it is and it’s best to stick to those that have a good reputation.
Conclusion
Cryptocurrency exchanges work similarly to foreign currency exchanges or stock markets. Many new ones are being opened almost every day and choosing the one that will suit you may require some effort and thought. Users should pay attention to the few key features the exchanges provide and compare and contrast different exchanges based on these.
It’s important for an exchange to trade in the currencies you’re looking for as well as for it to be safe and easy to use. A cryptocurrency exchange should also have a good customer support system and an insurance policy in case there’s a technical problem of some kind.
Featured image credit: Nick Chong/Unsplash
