There are many factors to think about when choosing a cryptocurrency exchange, but for many investors, things like liquidity, ease of use, and whether the exchange operates in your area should likely be top of mind. Those considerations could save you time and money right off the bat.
While not all crypto investors will have the same specific priorities when it comes to choosing a crypto exchange, a majority of people in the crypto space may consider the following variables — in the following order — to open an account, and start trading.
Understanding Crypto Exchanges
Cryptocurrency exchanges are platforms that provide investors and traders a place to buy or sell cryptocurrencies, and generally, exchange their fiat currency (such as U.S. dollars) for crypto. They typically work much like a brokerage account, where users open an account, fund it, and then buy and sell securities, like stocks, bonds or ETFs.
How They Work
Curious about the inner workings of crypto exchanges? Thankfully, as a user you don’t need to worry too much about it, as most of these exchanges do their best to make the trading process as seamless as possible to attract and retain users.
But again, these exchanges more or less work in a very similar way to a brokerage account — which allows you to buy and sell securities on the stock market. Effectively, they serve as market-makers and pair buyers with sellers. They will sell you certain cryptocurrencies (not all cryptos are available on all exchanges!) for your fiat (such as U.S. dollars), and then trade one crypto for another.
Crypto exchanges usually can be accessed through a smartphone app or a web browser, and allow users to connect a crypto wallet, or use the exchange’s custodial wallet, in order to execute trades.
14 Key Factors for Choosing a Crypto Exchange
As mentioned, there are a slew of factors that investors should consider before settling on the best crypto exchange for their trading or investing style. Here are 14 of those factors, in descending order, based on what might be the most important for the average crypto investor:
1. Jurisdiction
First and foremost, figure out if the exchange your eyeing serves customers in the state and country in which you live. There are a lot of rules and regulations at play here, so if the answer is no, then you won’t be able to use the exchange in question.
Some exchanges have website addresses specific to each country, too. Instead of “exchange.com,” for example, U.S.-based users might have to visit “exchange.us.” An exchange’s jurisdiction reflects not only their target market, but also where they’re allowed to do business due to certain cryptocurrency rules and regulations.
2. Ease of Use
How familiar with trading are you? That’s an important consideration when choosing a crypto exchange.
Newer investors might feel intimidated by exchanges that display things like order books, or have a complex interface with lots of charts and other information.
If that’s the case, a newbie-friendly exchange might be the best option. Some cryptocurrency exchange sites have “basic” and “advanced” views, allowing users to choose their layout. Others are designed specifically for those getting into crypto investing as a beginner to avoid any potential confusion.
3. Liquidity
Traders need liquidity so they can make trades at any time. This means an exchange must have a high enough volume of orders flowing through its order books on any given day.
In order to get that volume, an exchange must have either a lot of users, or users who hold a large amount of assets on the exchange and trade them frequently. If there are only a small amount of orders available, then there may not be available trading partners.
Liquidity is also important during times of high volatility, which happen often in the crypto markets. Less liquidity can exacerbate volatility to the point where prices can experience dramatic rises and falls.
4. Asset Choices
Does the exchange in question trade the assets you want? With thousands of different types of cryptocurrency in existence, no exchange can make trading pairs available for all of them. For instance, most exchanges will likely have popular coins like Bitcoin, Ethereum, and Binance coin available for trading, but not all may have a less-popular crypto.
In general, the higher market cap coins have a higher likelihood of being traded on popular exchanges. Investors looking for more exotic, lesser-traded coins might have to search out smaller exchanges. That may require some research, so have a wishlist handy, and see what’s out there.
5. Security
Numerous exchanges have had security issues over the past couple of years, so it goes without saying that you’ll want to keep security top-of-mind when choosing an exchange.
Holding coins on an exchange means trusting someone else with that money. In most cases, if the exchange gets hacked or an employee steals coins, investors end up empty handed. And yes, that’s entirely possible!
Most exchanges will offer information about their security practices somewhere on their websites. While no exchange is 100% secure, and it’s hard to know which is the most secure cryptocurrency exchange, you might consider looking for which exchanges have been around for the longest time, have the most customers, and have had the least amount of problems.
Potential features worth considering might include:
Cold Storage
The term “cold storage” refers to crypto assets being kept in a crypto wallet that stays offline where hackers can’t access them.
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Multi-Signature Wallet
Multi-signature wallets require multiple forms of verification, or signatures to be accessed. Users might have to use two different email addresses to open a multi-sig wallet, for example.
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6. Reputation
When choosing what restaurant to go to on the weekend, many people check reviews to help them decide where to go. Those looking at cryptocurrency exchange sites can consider doing the same. To do a little background research on what past and existing users of a particular exchange have said about it, do a search for “xyz crypto exchange reviews.”
7. Trading Fees
Fees often represent a hidden cost when it comes to purchasing cryptocurrency. Exchanges make their money by extracting fees from most or all transactions.
Be sure to understand what you’re being charged on any crypto exchange.
Some exchanges have their own native “exchange tokens,” similar to how ETH is the native token for the Ethereum blockchain. The exchanges create these tokens and often use them to give holders discounted trading fees.
For example, if a Binance user holds Binance Coin (BNB) in their Binance wallet, for example, then they would likely pay lower fees. The fees for each trade they make will be taken in the form of BNC, rather than from the currency pair they are trading.
8. Customer Support
Newer users might have a number of questions regarding the basics of crypto and how the exchange works. And odds are, you’re going to run into problems at some point — that’s why it’s good that an exchange has quick support options.
Sometimes the need for customer support could be urgent, as your money could be at stake. Crypto markets move quickly, and waiting days for a response from customer support could have real financial consequences. That’s why investors should look into the reputation of an exchange’s customer support service. Ensure that they respond quickly, that customers seem generally satisfied, and that the exchange makes customer service a priority.
9. Insurance
Some exchanges insure some or all of user funds. This might be an attractive selling point to investors who don’t like the idea of entrusting their money to a company with whom they’re unfamiliar. An exchange that offers insurance could shield investors from losses should anything catastrophic happen (like a hack or employee theft).
Insurance policies vary, so finding out details for a particular exchange would require independent research.
Crypto exchanges that offer various types of insurance include:
• Coinbase
• Binance
• Bittrex
• Gemini
Be aware, though, that crypto exchanges are not traditional financial institutions, and are not protected under the same rules and regulations. Your funds are not protected by SIPC insurance, for example.
10. Tech Infrastructure
Matching engines (which sync up buyers and sellers) built by developers aim to give exchange users a seamless experience when placing orders. A high-quality matching engine gives an exchange the ability to match orders even during times of extreme volume and volatility.
A good matching engine represents just one part of the infrastructure needed to create new trading pairs and order types, making it easy for the exchange to better serve its customers.
11. Leverage and Products
Most popular crypto exchanges are spot exchanges, meaning that they trade the actual cryptocurrency against fiat currency or other cryptocurrencies (most cryptocurrencies traded against Bitcoin or U.S. dollar stablecoins).
But some exchanges are derivatives exchanges, meaning they trade derivatives of cryptocurrency and not the actual coins themselves. Some common forms of derivatives include options and futures, where investors agree to buy or sell a commodity at a future date for a set price. The underlying commodity — crypto, in this case — doesn’t actually trade hands.
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Derivatives exchanges sometimes allow traders to make use of leverage, which allows them to make bets with more money than they have in the exchange. For example, 10x leverage would allow a trader with $1,000 in their account to trade with $10,000. This can amplify both gains and losses, and for many traders, can be extremely risky.
12. Deposit and Withdrawal Limits
Even if you’re planning on HODLing for as long as possible, you may still want to make withdrawals at some point. So, it’s important to know that while most exchanges don’t have a minimum deposit requirement, exchanges may put limits on how much money a user can withdraw or deposit in a given timeframe.
For example, a trader might only be able to withdraw $25,000 worth of fiat or crypto per day. As such, those interested in moving large amounts of money might want to consider limits like these. Even the best cryptocurrency exchange app might have strict limits on the amount of funds that users can move within a specific time period.
13. Transparency
As it relates to crypto exchanges, “transparency” refers to whether the exchange itself is upfront with its fee structure, the time it takes to complete trades and transactions, what jurisdictions it operates in, and, perhaps most importantly, how secure the exchange itself actually is.
If an exchange is evasive about those things, it may signal a lack of transparency, and send up red flags. Given how many scams and hacks there have been in the crypto space, investors and traders should take transparency seriously.
14. User Experience (UX)
If you’re going to use a crypto exchange, the experience should be pleasant. So, UX should be yet another factor to consider when choosing an exchange. Ask yourself: Does the exchange’s interface have an intuitive, modern feel? Are you getting lost in the settings and menus? Is the whole thing filled with confusing jargon?
If you answered in the affirmative to any of those questions, you may want to see what other exchanges are out there, and which may provide a smoother ride for users.
The Takeaway
Crypto exchanges are complicated, and choosing the right one for you and your goals requires some due diligence. It helps to know what kind of crypto you plan to trade (not all types of crypto are available on every exchange), and to set up a crypto wallet.
When choosing a crypto exchange, you also want to consider the fee structure, overall security, whether or not the exchange operates in your given jurisdiction — and how easy the exchange is to use.
FAQ
Which crypto exchanges are considered the most secure?
Generally, the biggest and most popular crypto exchanges are considered the most secure, as they have the most users and likely the biggest teams supporting their networks. They also have the most to lose from a potential hack or security snafu.
What do consumers look for in a crypto exchange?
Depending on their preferences, consumers can and do look at a number of factors and variables. Among the most common are security, liquidity, ease of use, fees, and whether or not the exchange operates in their country or state.
What are the crypto exchanges with the most users?
Some of the largest crypto exchanges in the world by user count include Binance, Coinbase, Kraken, Crypto.com, Gate.io, and OKX.
Photo credit: iStock/Drazen_
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$4,999.99
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