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One of the first things newcomers to the burgeoning world of cryptocurrency will notice about the process of investing and trading crypto is its use of its own dedicated platforms. Rather than purchasing crypto from a bank, investment firm, or other similar entity, investors must register on a crypto trading platform. It’s through this platform that they can exchange traditional currency for supported digital assets of their choosing. Many investors also employ specialized digital wallets, like a Monero wallet, to make the process of buying, storing, and trading cryptocurrency more secure.
Just as many different types of cryptocurrency now exist on the market, a great many crypto exchanges have likewise cropped up over time. These can vary widely in terms of how they operate and what coins they support, which can be intimidating to new or potential investors in turn. If you are new to crypto and searching for sound guidance before you invest, never fear. This deep dive will tell you all you need to know about how crypto exchanges work, how they can differ, and what you need to consider when choosing a platform.
There Are Multiple Types of Crypto Exchanges
Most major cryptocurrency exchanges currently operating can be classified under one of the following types:
- A direct trading platform is an entirely user-controlled cryptocurrency trading platform. Buyers and sellers engage in unmediated, peer-to-peer transactions. Due to the decentralized nature of such platforms, there are no fixed exchange rates for coins traded within them. Instead, sellers are free to set and adjust their own prices.
- A traditional crypto exchange operates according to the current market price of the cryptocurrencies it supports. Transactions between buyers and sellers are thus mediated and facilitated by the exchange. Some traditional crypto exchanges will deal exclusively in cryptocurrency, while others allow for conversion of supported cryptocurrencies into fiat money and vice versa.
- A cryptocurrency broker sets the price at which it allows its customers to trade cryptocurrencies, usually the market price with a premium added. This type of exchange is usually heavily regulated, easy to use, and also allows the trading of traditional currencies for crypto. The conveniences that a crypto broker affords make it a recommended exchange platform for novice investors despite the higher prices.
- A cryptocurrency fund is a pool of digital assets managed by a group of experienced professionals such as financial analysts, business financiers, and the like. Registered members of the fund can then invest in cryptocurrencies through the fund rather than purchasing, holding, and storing their own coins.
There Are No One-Size Fits All Crypto Exchange
As the sheer diversity of cryptocurrency exchanges currently in operation suggests, there’s no one exchange that will meet the needs of every user. Some exchanges, for instance, will prioritize rendering advisory services and supporting novice investors. Some carry only a very limited selection of large currencies, while others specialize in dealing specifically in obscure altcoins.
In choosing a crypto exchange to participate in, experts recommend that you first determine your particular interests and goals. Are you looking primarily for an especially user-friendly platform that will do the bulk of the work of managing your assets for you? Or do you prefer a platform that will allow you to buy a particular kind of uncommon coin? What about specialized tools that will help you learn more about crypto as you make your first forays into trading it? Once you’ve determined your goals, you can then narrow your search to exchanges that align with those goals.
When Choosing an Exchange, Prioritize Security
As with any aspect of cryptocurrency investing, it’s important to be wary of fraudulent trading platforms and other scams when choosing crypto exchanges, as these scams can and do compromise investors. Do your research to ensure that any digital currency exchanges you’re interested in offer legitimate services. Look in particular for exchanges that enjoy high levels of trust and satisfaction from their users. Likewise, familiarize yourself with the security measures the exchange employs to protect its user’s assets and information, as well as whether the exchange has a history of data breaches.
Consider the Platform’s Offered Fees and Pairs
Crypto exchanges tend to be distinguished by two major characteristics: the types of currency pairs they offer (such as fiat-crypto pairs or crypto-crypto pairs of different types) and the fees they charge for transactions conducted on their platform. Some of the most reputable exchanges currently open, for example, may offer only a limited selection of digital coins for trading.
Some platforms specifically put forward their services for converting crypto to cash and vice versa, possibly in an attempt to offer users an entry point into crypto trading itself. Thus, you should bear your own investment practices in mind and choose an exchange with features and limitations that both align with these practices.
When it comes to fees, meanwhile, some platforms may charge fees per transaction. Others may base fee calculation on the user’s level of activity across a particular period of time or other factors. Consider how these fee structures would interact with your individual approach to investing. Highly active users, for example, who intend to transact every day may be wise to avail of service with lower per-transaction fees.
Choosing a crypto exchange that works for you, like any other aspect of crypto trading, comes down to learning as much as you can about your options before you commit. Set clear goals and thoroughly research all platforms you may be interested in. Educating yourself thoroughly in this way will help you set your investments up for success in the future.
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