If Cryptocurrency has sparked your interest - of course the first question is where, and how do you start buying them? In this article, we’ll dive into everything you need to know about Cryptocurrency Exchanges.
WHAT IS A CRYPTOCURRENCY EXCHANGE?
A Cryptocurrency exchange is a place to trade, sell, and exchange Cryptocurrencies for either fiat money (like the USD) or other Cryptocurrencies.
Many people have heard of Forex (foreign exchange) and the stock market. A Cryptocurrency exchange functions in a similar manner.
In Forex you trade foreign currencies for each other, while in the stock exchange you exchange fiat for stocks.
In a Cryptocurrency trading platform many people trade Cryptocurrencies or use them to find a one they would like to buy.
Many Cryptocurrencies are only on specific exchanges. This will require you to sign up for an account or multiple (depending on which coins you are wanting to invest in) which will then allow you to begin trading.
All in all, using a Cryptocurrency exchange allows you to find and get any coin. Whether you’re using the exchange for day trading or just to hold them long-term after purchase is up to you.
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THE DIFFERENT TYPES OF CRYPTO EXCHANGES
Traditional Cryptocurrency Exchanges:
Traditional exchanges have the most characteristics similar to Forex or the Stock Market, allowing for the purchase for a variety of coins as well as stop losses and other features that day traders use.
Often times these exchanges take a fee from each transaction, while letting you trade through their platform as a middle-man.
When signing up for an exchange, it’s also important to note that you are allowed a maximum and minimum of withdrawal depending on the verification process you went through.
Meaning, the more information you give the exchange to verify your identity, the more money you can deposit and withdrawal at a time.
Direct Trading Platforms:
On a direct cryptocurrency trading platform there is peer-to-peer trading occurring in all countries around the world.
There are no fixed prices and the sellers end up setting their own prices.
A crypto broker is a website that has cryptocurrency at a fixed price, anyone can visit and purchase and they typically charge a small premium.
A prime example of this is Coinbase.com.
The stock market has index funds, mutual funds, etc. With Cryptocurrency, there are a select few cryptocurrency funds, and more that will be coming out in the near future.
They are pools of professionally managed cryptocurrency assets that the public can buy and hold via the total fund.
WHAT TO KEEP IN MIND WITH CRYPTOCURRENCY EXCHANGES
Each Cryptocurrency exchange its fees, different coins, and different privacy/security methods.
We want to make sure that you know and understand the different variables inside of each of these exchange types and what to look out for.
When it comes to investing, one of the most important things to keep an eye on are fees.
In fact, The Intelligent Investor has a whole section on knowing your fees and how they play into your trading, because if you are pursuing something like day trading, the odds are you are losing money on fees.
Each Cryptocurrency exchange has its own fees and structure of cost.
Some like Binance, give you a discount if you use their Binance coin as the fee for trading, while others have a flat cost.
This is something to keep in mind so you don’t end up sending your money to a wallet, back to the exchange, to another exchange, and back to the wallet, or something of that nature. Those fees will begin to add up before you realize it.
While cryptocurrency is intended to be a global peer-to-peer phenomena, it often times gets blocked in places like anything else.
Check into the crypto exchanges you are using before signing up to ensure that you are actually allowed to trade from your country.
Fiat Vs. Cryptocurrency Payment Methods:
Now another major trading feature is whether the exchange allows you to use something like USD, gift cards (typically from direct trading platforms) or Cryptocurrency only.
Many are cryptocurrency only trading platforms, while some (like coinbase) even allow you to use Debit and credit cards in lesser amounts to purchase cryptocurrency.
List of Coins:
Each cryptocurrency trading platform has its own list of coins and what it allows you to trade them for.
Some like Bittrex allow you to trade both in BTC and ETH for almost all currencies, while others only feature a few coins.
Check your exchange for the coin you want before signing up and loading funds (which can get you with fees again).
Time Restrictions of Attaining Funds:
Using exchanges like Gemini and Coinbase to buy cryptocurrency can be easy, but it may take up to 5-10 days for you to actually receive and be able to trade/move your cryptocurrency to a secure wallet when transferring from a bank account.
Identification and Security Requirements:
Each exchange has their own rules and requirements based on their location and if they are licensed or not.
Make sure to check what it requires if you want to stay anonymous, or if you are okay with updating your I.D., social security, and any other information needed.
Often times this will raise withdrawal and deposit limits, as we mentioned above.
On-site Security and Reputability:
Now the last is probably the most important.
If you haven’t heard of Mt.Gox, then you definitely need to read about it (use this article).
After that happened, security became one of the biggest things to look for in a cryptocurrency exchange, so our advice is to check out the reputability of the exchange and its history with hacking or shady activity beforehand.
This is paramount to your funds and the security of your personal information (if Equifax didn’t already leak it.)
You can use our guide to the best cryptocurrency exchanges or check a public forum like Reddit or Bitcointalk.
WHAT TO DO NEXT?
Now that you understand what a cryptocurrency exchange is, it's time to get started figuring out which one is the best for you.
If you want to get started on a Cryptocurrency Exchange easily click here.
If you want to see what The Top 10 Best Cryptocurrency Exchanges are click here.