Four factors to consider when picking a cryptocurrency exchange
A growing number of people are interested in cryptocurrency, ranging from investors to financial institutions. If you want to trade cryptocurrencies, too, you’ll first need an account on a cryptocurrency exchange. These platforms allow you to trade virtual coins for other assets, such as fiat or virtual currencies and serve as a go-between for the buyer and seller. Stick to the most popular and traded apps, check prices before you purchase crypto, and don’t invest more than you’re willing to lose, especially if you’re a newbie to the crypto world.
There are so many cryptocurrency exchanges, it can be overwhelming to choose the best one. Still, a good starting point is to check if the one you’ve laid your eyes on is available in your country. Then proceed with studying aspects like security, fees and user experience. These platforms are not all created the same: some can be too complex, others are shady, and many charge high fees.
If you’re new to crypto, it might be difficult to distinguish a reputable provider from one that only appears to deliver quality. You know you can’t just give your personal data and money to the first app you come across. But being cautious and understanding the following factors you must analyse before you register on an exchange might prove helpful to your crypto trading experience.
Technology
According to some experts, many industries, including law and finance, might be disrupted by blockchain and related technology. The benefits of cryptocurrencies include decentralised systems that do not fail and cheaper and faster money transfers. A cryptocurrency, like Bitcoin, Ethereum or the US dollar, is a medium of exchange that is digital and uses cryptography to verify the transfer of funds or regulate the creation of monetary units. This has been gaining people’s trust in crypto apps, especially since no third party is involved, and there’s no room for corruption.
Nevertheless, you shouldn’t only rely on the developers’ geniality because no one can 100% guarantee your wealth is untouchable. There are some features to analyse before you register on a crypto app, such as:
– The web address should begin with HTTPS because HTTP connections mean the web page isn’t secured. Two-factor authentication should be used for login security – username, password and a piece of info only you have.
– Small customer deposits can stay in the app’s wallet if the exchange is large and safe enough, but significant deposits are best to be kept offline, in what is known as “cold storage”.
– The platform should send SMS and email alerts and have auditing programs that monitor activity every second for an additional security guarantee.
– What you can do for maximum security is to safelist your IP address or withdrawal wallet addresses.
Liquidity
Liquidity is critical for a good platform because it relates to the ability to easily convert your coins into cash and vice versa without charging a high markup. This is especially true in the world of digital assets, where prices fluctuate from minute to minute.
When you check Binance and see that the price of a coin you want to purchase is skyrocketing, you’ll most likely want your buy order to be filled fast and at the price quoted on the screen. Similarly, you’d want to get rid quickly of a coin that’s losing value progressively. However, these tactics are for the day and swing traders, because long-term investors adopt buy-and-hold strategies, holding crypto in the hope its price will boom.
The quickest way to determine if an exchange has enough liquidity is to examine its trading volume: the higher, the better. There are popular cryptocurrency information websites that provide a 24-hour trading volume for hundreds of exchanges.
Security
Cryptocurrency exchanges let you buy, store, sell and trade virtual coins, but don’t forget they’ll also gain access to personal information about you. It’s crucial to choose a platform big enough – if not the biggest – because these have the necessary funds to invest in security tools and programs.
Before you wonder how to buy crypto, comprehend how paramount it is to have your money and data secured. You shouldn’t put your trust in an unreliable crypto exchange, as it might leave you susceptible to fraud, have your funds stolen and your data broken. This is why experienced investors would recommend you to turn to only respected and well-known crypto trading platforms.
There are also scams and traps you can easily fall into, so check the following aspects to decide if the chosen exchange is safe or not:
– Deposit and withdrawals limits
– Customer support
– Trading volume
– Transparency
– Insurance
– Fees.
Fees and legal aspects
It is possible and legal to use exchanges from other countries, but using one from your own is recommended. Some platforms only support a small number of countries, and not choosing a foreign one may make regulatory changes easier to comply with. It’s also worth noting that if you lose your funds, you may be reimbursed, should the exchange have this kind of insurance.
After you’ve gone through the legal aspects, you should compare exchanges’ fees. They’re usually no higher than 1% per transaction and may decrease as your trading volume grows. Several apps are also known to charge exorbitant withdrawal charges for specific altcoins.
Look into deposit fees as well, as numerous exchanges provide a quick and easy way to purchase virtual coins using a debit or credit card, but this service usually comes with a 5% or higher charge.
Extra tips
If you value your anonymity, you will probably avoid any exchange that requires you to disclose too much about your identity. Yet, you can’t skip the KYC exchange process. You must know beforehand that the chosen platform might require you to submit PII, which typically includes your date of birth, full name, address, email address, phone and social security numbers.
You can rejoice, though, because finding a trustworthy, user-friendly and cheap-in-fees exchange is not that hard. If you further pay attention to more aspects than what’s been summarised above, you can rest assured you’ve minimised the exchange-related risks. These are some additional tips recommended to both beginners and experienced traders:
– Check how many coins you can trade on the chosen platform
– Examine its insurance policy
– Get a grip on your tax reporting.
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