Which Crypto Exchange Should You Use?
Trading cryptocurrency is a complicated endeavor. You can make your life a lot easier by using a crypto exchange. But with so many options—including many that have been around for only a few years—choosing the right one takes a lot of consideration and care. When cryptocurrencies first appeared, early adopters acquired coins either through mining or by swapping them in online forums. But unless you have lots of time (and technical expertise), chances are that you will want something more convenient. Enter crypto exchanges.
What Are Crypto Exchanges?
Crypto exchanges are businesses that store crypto assets and match you with buyers and sellers, making it possible to trade crypto much like you would trade stocks in a brokerage account. When you think of crypto exchanges in this context, think of Centralized Exchanges (CEX) like Binance, Kraken, etc., and not Decentralized Exchanges (DEX) like PancakeSwap, Julswap, etc. However, while exchanges have made trading crypto much more accessible, there have been some big problems too, from headline-making security breaches to exorbitant trading fees that dwarf what traders might pay to trade other assets. The upshot is that you can’t just go with whatever exchange you stumble across surfing the web. So how do you pick which exchange suits you best? Here are 5 key factors to consider before choosing a cryptocurrency exchange:
1. Check the number of coins you can trade
With crypto’s surging popularity, there are now tens of thousands of different coins to choose from. No exchange offers every digital asset, so make sure yours provides the ones you want -– or as many as possible. Think about whether you are interested in Bitcoin, Ethereum, and the handful of leading DeFi tokens that help drive smart contracts. If you want a simpler or more complicated menu, some exchanges are perfect for you.
A great starting place is to look out for large, well-known exchanges like Coinbase and Kraken, which offer a wide array of coins and tokens that can accommodate most investors, from beginners to active traders. Coinbase lets you trade more than 460 coins, and Kraken offers more than 160 coins including so-called meme coins like Dogecoin and Shiba Inu coin.
For the crypto-obsessed, there are exchanges, often based overseas, that let you trade dozens of obscure coins. If you want to mostly trade stocks along with a few prominent coins such as bitcoin cash, Ethereum, and Dogecoin, consider Robinhood, the well-known stock-trading app, which lets you trade a handful of coins commission-free. To pick out the right exchange for you, check out this list.
2. Make sure there’s Enough Liquidity
It’s important to find an exchange with liquidity — the ability to easily turn your cash into coins, or vice versa — without paying a big markup price. This is especially true because prices move fast in the world of crypto. When the price of a coin you want to buy is rocketing to the moon, you’ll want to know whether or not your buy order was filled quickly and at a price close to the one you see quoted on your screen, not that you had lost out on some returns before it finally gets filled. (Ditto if you are trying to sell as a coin plunges back to earth.) The quickest way to get a handle on this is to look at the exchange’s trading volume: the higher, the better. Websites such as CoinMarketCap provide the 24-hour trading volume for hundreds of exchanges. Coinbase, Binance, and Kraken recently have shown the highest trading volume. In addition, you’ll want to look for a well-established exchange, with no less than a five-year track record, and one that also takes steps to prove it truly possesses the assets it claims to hold on your behalf. For example, Kraken has a “verify my audit” button that lets users see when an independent audit last verified the coins in their accounts.
3. Compare the fees
Unlike brokerage accounts at MT5 or Fidelity where you can now trade forex, stocks, bonds, and Exchange Traded-Funds (ETFs) for free, there’s no free lunch with centralized crypto exchanges. Crypto exchanges typically charge a fee every time you deposit, make a withdrawal, or trade. Fees range from 0% to 5% per trade, depending on your type of transaction and your payment method. Fee tiers are typically based on your total trading volume over a 30-day trading period, and the percentage you pay decreases as the size of your trades increases. For example, if you traded $2,000 worth of tokens 30 times in a month on Bitstamp, fees would amount to $150. But if you made a single trade of $40,000, the fee would be only $50.
Fees at some major exchanges:
- FTX US—0% to 0.4%
- Kraken—0.9% to 2 %; varies by type of transaction
- Coinbase—0.5% to 4.5%; varies by type of transaction
- Crypto.com—0% to 2.99%; varies by type of transaction
- Binance—0.1% to 5%; depending on payment method
- BlockFi—0% spread of 1%
- Bitstamp—0% to 0.5%
4. Ensure there’s enough security
Stock exchanges like the Nigerian Stock Exchange (NSE) are heavily regulated. By comparison, crypto exchanges are the Wild Wild West. One reason is that while the NSE has been around for decades, crypto is barely more than a decade old. It’s no secret crypto exchanges are vulnerable to hacks: Mt. Gox, one of the most prominent early exchanges, collapsed after $460 million was stolen in 2014. As recently as last December, exchange BitMart was hit for $150 million. So it’s common sense to avoid putting money into a crypto exchange with a significant history of theft or cyberattacks. Most crypto exchanges offer basic protection like two-factor authentication, typically using apps like Authy or Google Authenticator to build a line of defense against phishing scams or other crypto theft. But you can also be on the lookout for additional measures of security. For example, Crypto.com’s Exchange mobile app supports biometric authentication, which uses facial and fingerprint identification on your smartphone to verify your identity. To further augment security and ward off imposters, major exchanges such as Kraken and Gemini require you to provide Nigerian government-issued identification such as a passport or driver’s license when you open a new account. They also have additional layers of codes that need to be authenticated when you change funding levels, buy or sell, or if you make major account changes—like freezing your account— that require a master password.
5. Vet the insurance policy
Digital security that will prevent hackers from stealing customer assets should always be the top priority for a crypto exchange. But the good ones will still have a strong insurance policy just in case of rare cyberattacks. Many exchanges now carry commercial crime insurance which typically covers acts of dishonesty, theft, destruction, or cyber fraud. For example, Gemini says it maintains $290 million in digital-asset insurance for certain losses. Still, insurance varies widely across exchanges, so it’s important to check what the insurance package of your exchange covers. You can do so by going through the user agreement you are given when you sign up, and also frequently in the FAQ sections on exchange websites.
If you’re looking to get started with cryptocurrency trading or investing, choosing the right exchange for your specific needs is essential. Whether you want a large number of crypto assets to trade, the lowest possible fees, the best mobile trading experience, or water-tight security, there is a good option for you.