How to Choose a Cryptocurrency Exchange

Headlines continually read that there are many hacks, thefts, frozen assets and exchanges closing up shop and disappearing overnight. This makes many newcomers to crypto a bit uneasy on where to place their trust in an exchange. While many may flock to Coinbase for its name, ease of use, and other reputable Bitcoin exchanges to get funds in and out of the exchange, there are other options out there, but the question is whether these other exchanges are a safe place for put hard-earned funds.

This article will help guide you to find the biggest cryptocurrency exchanges, ones with the best liquidy and security.

How to get started in four simple steps

Step 1: Open a domestic cryptocurrency exchange in your country and verify your account. It is recommended to open an account with an exchange in your country, with an address. Should something go wrong, you would know where to find the exchange and the proper authorities to contact.

Step 2: Deposit funds from your bank account to your crypto exchange account and start buying Bitcoin. You can stop here if you choose. If you want to buy other cryptocurrencies other than the big ones, such as Bitcoin, Ethereum, Litecoin, etc. then move on to step three.

Step 3: Open a crypto exchange account that offers a variety of altcoins. These exchanges usually don’t accept fiat deposits, so that is why you, in steps one and two, bought Bitcoin to be able to exchange it for other coins.  

Step 4: After verifying your account, send the Bitcoin that you bought from the fiat-accepting exchange to the new crypto exchange. Once it arrives, you can start buying other coins with your Bitcoin. When you decide to sell, you will need to convert it back to Bitcoin and send it back to the fiat-accepting account. Once it arrives there, you sell it again to convert to cash and transfer it to your bank.

Top-rated Bitcoin exchanges

Exchanges that allow fiat deposits: Best USD Bitcoin exchange

• Coinbase/GDAX
• Kraken
• Gemini
• Bitstamp
• CEX:IO

Exchanges that only accept crypto deposits: Cryptocurrency exchange comparison

• Poloniex
• Bittrex
• Bitfinex
• Liqui

Factors to consider when navigating a Bitcoin exchange

1. Coin Offerings

Many exchanges offer only some of the most popular coins, such as Bitcoin, Litecoin and Ethereum. There are only a handful of exchanges that offer a wider variety of coins. These exchanges are usually the ones that do not accept fiat deposits.

2. Liquidity

Liquidity refers to the ease of buying/selling in the market. High liquidity means that there is a huge number of buyers/sellers. High liquidity is good as it leads to better price discovery and it allows you to transact faster, you may be able to avoid the maker/taker fees, discussed below.

3. Security

The level and type of security mechanisms employed by an exchange are vital in ensuring that your coins are safe. Examples of good security practices undertaken by exchanges include:

a) Keeping deposits in cold storage; this means that your coins offline, beyond the reach of hackers. Popular methods of cold storage include device wallets, like Ledger or it could be even paper wallets for cryptocurrency.

b) Availability of two-factor authentication option- this will increase account security. Many exchanges do not allow transactions without connecting two-factor authentication. We advise you to use this security enhancer anyway. Every time you try to log in, you will need to enter a set of random numbers from the application (Google authentication), which change every 30 seconds.

c) Email encryption and verification; for each transaction there will be an email sent to your account to confirm the transaction. If you get an email from a transaction you don’t recognize then your account has been compromised-act fast!

4. Level of customer support

Quality, responsive customer support will save time and reduce stress, especially in fast-paced environment-crypto trading is not for the faint of heart. Problems regarding your verification process, deposit/withdrawals, funds reflection, and trading orders should be solved quickly by the exchanges customer support team.

5. Trading fees

Low transaction fees on buying and selling are important if you are going to trading often. It is important to compare the fees of your exchange, with other exchanges to find the best rates.

6. Ease of use

This goes without saying, if it is not easy to use, you are probably not going to use it. For example, when an exchange only shows transactions in Bitcoin, it is hard to tell how much actual money you are spending. This is not user-friendly. General navigation should be straightforward, look for clean designs to ease the user experience.

Watch out for fees!

You cannot trade fee-free yet, well maybe on Robinhood you can, but for the majority, there are fees to be paid with each transaction you make. The following are some of the various fees you may have to pay when you buy or sell.

Network/Miner Fees

These fees ensure your transactions are quickly processed by miners. Many exchanges will set this rate automatically. This is where the “reward” for mining blocks comes from if you are a miner.

Conversion fees - 0.5% to 5%

These fees are how exchanges make money on your transaction and vary greatly depending on your method of payment. For example, if you were to purchase Bitcoin through Coinbase, using a debit card, it would cost you 3.99 percent, while purchasing directly using your bank account would be only 1.49 percent, a significant advantage.

Maker and taker fees - 0.1% to 0.5%

The Maker/Taker Fee is another way that exchanges make a profit and not every exchange has them so if you can avoid these fees, which is more money in your pocket. The higher end of fee spectrum around 0.25 percent is associated with takers, who place orders that are immediately matched by another user. Conversely, makers, whose orders are not immediately matched by another user, add liquidity to the market and pay lower fees as a result. This fee is calculated as a percentage of your buy or sell, and that percentage is based on your trading volume over the last 30 days.

Armed with all this information, you should be ready to go out there and make a solid choice that suits your needs, provides a high level of support and security.