8 Key Factors for Choosing a Cryptocurrency Exchange

There are many factors and features to consider when cherry-picking a cryptocurrency exchange to use. Several beginner digital asset users and investors are in the dark on how to begin trading and buying virtual currencies.

So, it’s extremely important for both fresh and seasoned investors to inquire and ask queries before proceeding. Here are key factors to consider when cherry-picking a digital currency exchange (DCE), irrespective of experience:  

1.    Geographical Location & Restrictions   

The majority of cryptocurrency exchanges have a narrow geographical scope of people who they cater to. So, an investor has to make sure before signing up for a cryptoasset exchange that it is easily accessible from their home country (and is legitimate). As cryptocurrency and blockchain technology regulation and other key policies are underway, there’s a possibility that your country will crackdown your opportunity to access and use the exchange.   

For instance, Binance, the biggest DCE by volume globally, is open to all nations, apart from all those on economic and trade sanctions lists like Syria, North Korea and Iran.   

2.    Authenticity, Security, Anonymity and Support  

You should carry out thorough research to ensure that you are selecting a genuine, legitimate, secure and reliable platform. The previous examples of hacks such as Mt. Gox, Coincheck, DragonEx,Cryptopia, CoinBene, serve as solemn warnings to potential crypto investors to delve into the exchange’s security protocol.   

Currently, the digital currency sector faces various issues including the Ponzi, pyramid, pump-and-dump schemes, etc. But it’s upon all DCE platforms to fight these forms of fraud. Most decentralized exchanges put emphasis on security and anonymity. They enable users to sign up minus giving any personal data and creating a private recovery seed.   

“The biggest concern for any investor on a DCE is the probability of fraud or hacks due to deprived security or a deficiency of investor protections,” Patrick Gray, founder & CEO of HashChain Tech – a cryptocurrency mining company.   

You should look for a cryptoasset exchange that also have these important features: Two-factor authentication like Google Authenticator or SMS; Complex captchas; and Anonymous sign-ups – especially on decentralized exchanges.   

“If crypto exchanges can figure out an efficient and swift way to operate decentralized exchanges — let’s say, like distributed ledger technology aka blockchain — they can function more securely,” Dr. Bora Ozkan, an expert in capital markets, said.  

“Investors should assess exchanges and the firms that run them as they would any other institution that they would trust to secure their money, like banks,” noted Richard Hendrix, cryptocurrency analyst at Real Ventures.

3.    Method of Purchase

Cryptocurrency exchanges have various methods used when purchasing digital assets. Some platforms demand deposits via bank transfer, others prefer credit & debit cards, PayPal, while others only use crypto for purchases and acquisitions.   

So if you are there holding no crypto and you want to join the market and the industry as well, it is better you first look for a DCE which accepts fiat (traditional) currency such as a dollar, euro, pound, yuan and others. Always find out how long it takes for purchases to be completed – there are exchanges that execute transactions instantly and there are those that take days or weeks.   

4.    Supported Tokens  

There is no doubt – 99% of the exchanges support Bitcoin (BTC) and Ethereum (ETH). However, different platforms support different digital assets, for instance, Binance, trades a variety of altcoins while Coinbase strictly trades 12 digital currencies, so an investor should first find out the cryptos supported by the DCE he/she wants. Investors can also find out whether the platform supports stablecoins such as TrueUSD (a USD-backed crypto directly secured and collateralized across a network of banks).   

5.    Trading Platform, Peer-to-Peer Exchange, or Broker

Today, there are 3 main types of crypto exchanges, so an investor has to first understand what they are before selecting an exchange.   

Cryptocurrency brokers, such as AvaTrade, work the same way like forex brokers. Here, the brokers fix prices so that purchasers can buy the virtual currencies via the DCE. Peer-to-Peer (P2P) exchanges like Cointal, enables buyers and sellers to intermingle and interrelate directly, relying on both participants to decide on any particular transaction. With P2P platform, the network is not congested, and is very secure and trusted. Trading platforms such as Binance, Localbitcoins, eToro, BitMEX, Coinbase, Poloniex, Kraken, BitFinex, HitBTC, etc. are the most common in the cryptoasset sector.   

6.    Fee Structure 

Various exchanges have different transaction fees and fee structures, which is very important when cherry-picking a DCE. Some platforms provide reduced fees, but this happens when the exchanges’ own coin is employed to make a transaction. Other platforms charge a transaction fee strictly on sales, enabling buying free of fee.   

“Pay attention to hidden fees and the fine print. Some crypto exchanges are frank, open and upfront about their fees, while others bury and entomb them,” Gray revealed.   

7.    User Interface, User Experience and Customer Support

The user interface and functionalities are key features for the cryptoasset investor, traders or first time buyer. A spontaneous interface and decent user experience enables user activities on the DCE platform to be much efficient and highly cognizant. However, different users will enjoy different interfaces since the user experience is subjective and slanted. In future, any crypto exchanges with a nice user experience will certainly register a massive growth in transaction volume. Some platforms like KuCoin provide free tokens to its customers in exchange for using their exchange services.   

Can you get a query answered by a well-informed human being, or will you be directed to an insufficient FAQ page or user forum?

“Even for the top exchanges, customer support is a giant issue,” Hendrix revealed, stating that it can be “almost impossible” to get anybody on the phone for assistance with technical holdups and snafus, even at some of the greatest renowned DCEs.   

8.    Volume and Liquidity   

A high volume of trading is ordinarily a decent indicator of an exchange’s liquidity and general ability to fill a customer’s order at any particular time of the day – regardless of the size. considering the category of trading an investor is seeking to do, liquidity is a tremendously significant factor. It even plays a big role during the purchase or sell of cryptoassets. Nevertheless, if an investor wants to buy and trade smaller tokens, such as Ethereum request for Comment (ERC20) coins, then he/she will likely need to rely on a smaller or decentralized DCE.  

Generally, each person has one’s own reasons when choosing the right cryptocurrency exchange to use. Maxim Bederov, a serial entrepreneur and early-stage investor in a number of projects shared his thoughts. He has been active in blockchain technology and the digital asset space since 2014. In 2018, he established one of the first retail funds incorporating digital assets, so dealing with cryptocurrency exchanges was one of his main tasks.

   

Maxim told Coinidol:   

“Speaking about the criteria for choosing a crypto exchange, you definitely should take into account security, commission size, the number of trading pairs and a number of other indicators.
Being an investor, first of all I pay attention to the team that leads the project. We should understand how effectively all these people are able to conduct business and respond to various crises. It should be noted that safety of your money depends on it.   
Secondly, I advise you to pay attention to the business model of the exchange and to what happens to the profit. If the team reinvests it in their own development, then the project has great prospects. If the next Ferrari or a villa is bought with the money received, it is worth considering whether you want to entrust your money to such an exchange.   
Third, you need to pay attention to the availability of the necessary work licenses. The future belongs to those who comply with all the regulators’ requirements and act in strict accordance with national and international law”.