Best Crypto Exchanges: How to pick the best ones

TL;DR

Cryptocurrency exchanges or crypto exchange platforms are becoming increasingly popular as more people look to invest in digital assets. Choosing a suitable platform can be challenging with so many different crypto exchanges available.

But with the proper research and due diligence, you can find the crypto exchange that best meets your needs. This article will explore the qualities of the best crypto exchanges and provide insights into their underlying infrastructure.

Introduction

Cryptocurrency exchanges are online platforms where individuals buy, sell, and trade cryptocurrencies. More than that, they are the gateways to the digital asset markets.

Like every other aspect of life, there’s the good and bad. The same is true for cryptocurrency exchanges. While most crypto exchanges will allow you to trade and quickly, trading-related actions beyond that may not be as smooth.

In the same breath, the best global crypto exchanges offer comprehensive practical functionalities beyond the basic exchange of cryptocurrency. Having a grasp of the relevant key background information is, therefore, very important.

Not to worry, though; we’ve got you covered. Read on to learn about the top cryptocurrency exchanges, how they work, the best offers available, and the important factors you should consider before jumping the gun!

What Is a Crypto Exchange and How Does It Work?

A cryptocurrency exchange is a platform that enables the exchange of cryptocurrencies for other digital assets. It could be fiat money or other digital currencies. Crypto exchanges act as an intermediary between buyers and sellers of cryptocurrencies.

They are also comparable to traditional stock exchange platforms, providing a wide range of services, such as cryptocurrency trading, market analysis tools, and portfolio management.

Crypto exchanges, a fundamental component of the cryptocurrency infrastructure, are the most popular way for investors to acquire access to the cryptocurrency markets. They offer liquidity by linking buyers and sellers via various order types.

Prospecting buyers can place market or limit orders to purchase digital assets at a certain price or better. On the other hand, Sellers can also place market orders or limit orders to sell their coins at a certain price level or better. Exchange fees are usually charged for each transaction.

Crypto exchanges also offer other helpful features, such as advanced crypto trading tools like margin trading, charts & graphs for technical analysis, and news & alerts about upcoming events related to specific coins/markets.

Simply put, the best crypto exchanges provide you with everything you need to keep you updated on all crypto.

Here’s a quick overview of how crypto exchanges work.

Sign-up and verification

To start crypto trading on an exchange, you must first create an account and undergo a verification process, which usually involves providing personal information and identity documentation.

Deposits

After successfully opening a crypto exchange account, you must deposit funds (fiat currencies) into your exchange wallet. This can be done through bank transfers, credit or debit card payments, or by transferring funds from a different cryptocurrency wallet.

Trading

Using the funds in your crypto wallet, you can place buy and sell orders for the cryptocurrencies listed on the exchange.

The exchange matches buyers and sellers and then facilitates the trade. Remember that the price of a cryptocurrency on an exchange isn’t fixed, nor does the exchange determine it. But instead by supply and demand.

Withdrawals

Once a trade is complete, you can finally withdraw your funds from the exchange back to your cryptocurrency wallet, convert it to fiat currency, and withdraw it to your bank account.

Exchanges make money by charging fees for their services, including trading fees, deposit/withdrawal fees, and listing fees for new cryptocurrencies.

Types of Crypto Exchanges

There are two major categories of cryptocurrency exchanges, each with unique features and offerings.

Centralized exchanges (CEXs)

A centralized exchange is a traditional exchange that operates like a stock exchange. A central authority acts as the intermediary between buyers and sellers of cryptocurrencies. The exchange matches buyers and sellers and facilitates the trades, with the exchange holding users’ funds in its wallet system.

CEXes are typically helmed by an organization that serves as the central body. Centralized exchanges make it simple to start trading cryptocurrencies by enabling consumers to directly change their fiat money, such as dollars, into crypto. Centralized exchanges are where the vast bulk of cryptocurrency trading occurs.

With centralized exchanges, there is a risk of hacking. On a CEX, the corporation keeps the trading crypto on its platform—at least temporarily, while transactions are processed—increasing the danger of hackers moving the funds in transit.

CEXes have improved security in recent years to mitigate this issue. They now hold the majority of customer funds offline and typically take out insurance plans to cover cryptocurrency losses in the event of hacking, to list a few.

If you prefer the hassle-free experience of a centralized exchange, you can lower your risk exposure by moving your cryptocurrency to an independent, off-exchange hot or cold wallet.

Binance, Coinbase, and Kraken are a few examples of centralized exchanges.

Decentralized exchanges (DEXs)

A decentralized exchange (DEX) is a cryptocurrency exchange that operates on a blockchain network and does not have a central authority holding users’ funds. Instead, crypto trades are made directly between users, with the exchange acting as a transaction facilitator.

DEXes share accountability for facilitating and confirming crypto deals. As Bitcoin blockchains operate, anybody who wants to join a DEX network can certify crypto transactions.

This helps promote accountability and transparency while ensuring that an exchange may continue to operate regardless of the status of the firm that developed it.

One might begin to wonder then, this is too good to be true. Well, maybe — the issue is that decentralized exchanges are far less user-friendly in terms of interface and currency conversion.

For instance, decentralized exchanges typically don’t allow customers to deposit fiat money (USD, EUR, JPY, etc.) and trade them for cryptocurrency. The implication is that to utilize cryptocurrency on a DEX; you must either possess it already or buy it via a centralized exchange.

You’ll also do direct peer-to-peer trading. This implies that it could be harder for you to locate a party willing to buy what you’re selling and that if liquidity is low, you might have to accept price reductions to complete any buy or sell on time.

Examples of decentralized exchanges include Bisq and Uniswap.

Hybrid Exchanges

As the name suggests, a hybrid crypto exchange is a cryptocurrency trading platform that utilizes centralized and decentralized architectures. The hybrid exchange concept was developed in response to the shortcomings of both centralized and decentralized cryptocurrency exchanges. 

In this case, the user has total control over their funds and can choose to trade with or without a middleman.

Specifically, hybrid exchanges combine the advantages of CEXes and DEXes, providing users with greater security, speed, and liquidity than either can offer individually.

While still offering the extra protection of decentralized exchanges, hybrid cryptocurrency exchanges provide traders access to traditional market features like leverage and margin trading, order books, and market analysis tools.

These exchange variants are typically more resistant to cyber assaults as they do not rely on a single point of failure (as traditional centralized exchanges do). Also, because they employ a central server to handle orders, they feature quicker transaction speeds than their decentralized equivalents.

Furthermore, they provide higher liquidity by consolidating order books from many sources into a single shop. This enables traders to take advantage of arbitrage possibilities in multiple markets at once without switching manually between different platforms or wallets.

That said, it’s worth mentioning that hybrid exchanges tend to charge higher than average fees. This is partly due to their reliance on centralized and decentralized infrastructure for trading operations.

Bottom line

All in all, hybrid crypto exchanges offer users a balance between decentralization and convenience by combining elements from both traditional centralized systems and newer distributed networks into one platform that meets all user needs for security and usability when it comes to digital currency transactions.

N.B

Before going on, keep in mind that the idea of a hybrid crypto exchange is relatively new, with only a few of them either operational or in the beta testing stage, so you shouldn’t expect to have as many alternatives as you would with DEXes and CEXes.

Crypto Exchanges Vs Traditional Stock Exchanges

Crypto exchanges are structured similarly to traditional stock exchanges. These two financial infrastructures are similar and dissimilar in terms of operation.

Let’s take a look at how they compare.

Key Similarities

Crypto exchanges and traditional stock exchanges are platforms that allow for the buying and selling of different types of assets.

Despite having distinct underlying architectures, these two types of platforms have several intersecting features. These include:

Trading platform

Both crypto exchanges and traditional stock exchanges provide a platform for buying and selling assets. Both types of exchanges typically have a user-friendly interface that allows for easy buying and selling of assets.

Market information

Traders and investors can obtain market information from both crypto exchanges and traditional stock exchanges. This includes real-time prices, historical data, and charts that help traders make informed decisions.

Access to a wide range of assets

Both crypto exchanges and traditional stock exchanges provide access to a wide range of assets. This allows traders to diversify their portfolios and manage risk by spreading their investments across different assets.

Order types

Crypto and traditional stock exchanges offer various order types, including limit orders, market orders, and stop-loss orders. With the aid of these order types, traders can more skillfully manage their risk while executing trades at predetermined prices.

Security measures

Security is a top priority for both cryptocurrency exchanges and traditional stock exchanges. Both types of exchanges employ measures such as two-factor authentication, encryption, and secure storage of assets to protect traders’ assets and personal information.

Customer support

Both crypto exchanges and traditional stock exchanges provide customer support to traders. This includes assistance with account setup, troubleshooting, and answering questions about the platform and trading process.

Key Differences

Although crypto and stock exchanges are based on the same operating framework, there are distinct differences that are worth noting.

Asset types traded

The primary difference between crypto and traditional stock exchanges is the traded asset type.

Crypto exchanges primarily deal in cryptocurrencies such as Bitcoin, Ethereum, and others, while traditional stock exchanges deal in stocks and other securities such as bonds and mutual funds.

Regulation

Traditional stock exchanges are heavily regulated and monitored by government agencies, while the regulation of crypto exchanges is still in its early stages and varies from country to country. This can make traditional stock exchanges more appealing to some investors who value stability and security.

Trading hours

Traditional stock exchanges typically have set trading hours, while crypto exchanges are open 24/7. This allows for greater flexibility for crypto traders, who can trade anytime, while traditional stock traders must wait until the market is open.

Trading fees

The fees charged by crypto exchanges and traditional stock exchanges can vary significantly.

Crypto exchanges often charge lower fees, but they can also be more volatile due to the lack of regulation and the fact that the value of cryptocurrencies can change rapidly. Traditional stock exchanges typically charge higher fees but offer more stability and security.

Liquidity

Traditional stock exchanges typically have higher liquidity, as they have been around for much longer and are more established. On the other hand, crypto exchanges have grown rapidly in recent years, but their liquidity can still be lower compared to traditional stock exchanges.

Overall, both crypto exchanges and traditional stock exchanges have their own unique advantages and disadvantages. The choice between the two will depend on the individual’s investment goals, risk tolerance, and preferences.

Some investors may prefer the stability and security offered by traditional stock exchanges, while others may prefer the flexibility and potential for higher returns offered by crypto exchanges.

Types of Crypto Orders Supported for Trading on Crypto Exchanges

In cryptocurrency trading, traders can use several different types of orders to buy or sell cryptocurrencies. Depending on the robustness of the crypto exchange, the available order features will vary.

Here are the common types you’ll come across:

Market Order

A market order is a type of order that is executed immediately at the current market price. A market order aims to buy or sell a cryptocurrency as quickly as possible at the best available price.

For instance, say you want to buy 1 Bitcoin, and the current market price is $50,000. You place a market buy order for 1 Bitcoin.

Your market buy order will be filled immediately at the current market price of $50,000, regardless of whether the price is higher or lower at the time of the order. This ensures that you get into the trade quickly, but it also means that you may pay a higher or lower price than you intended, depending on market conditions.

Limit Order

A limit order is buying or selling cryptocurrencies at a predetermined price or higher. Limit orders are not executed immediately but are placed on the order book and wait to be filled by another trader.

Suppose you want to buy Bitcoin, and the current market price is $50,000. However, you do not want to pay more than $49,000 for each Bitcoin. You can place a limit buy order for 1 Bitcoin at $49,000 in this case.

Your order will remain in the book until the market price reaches $49,000. Your order will be executed at that point, and you will purchase 1 Bitcoin at the specified price of $49,000.

If the market price never reaches $49,000, your order will remain in the order book until you cancel it or it is filled by another trader.

Limit orders enable traders to restrict the price at which they buy or sell a cryptocurrency, allowing them to execute trades at a desirable price.

Stop-Loss Order

A stop-loss order is a type of order that is used to limit potential losses. A trader will set a stop-loss order at a certain price below the current market price, and the order will be executed once the price of the cryptocurrency falls to that level.

Assuming you bought 1 Bitcoin at $50,000 and want to limit your potential losses if the price drops. You decide to set a stop-loss order at $45,000.

If the market price of Bitcoin drops to $45,000, your stop-loss order will automatically trigger a sell order for 1 Bitcoin at the market price. This will limit your losses to $5,000, or 10% of your initial investment.

Take-Profit Order

As the name suggests, the take-profit order is a type of order that is used to lock in profits. A trader will set a take-profit order at a certain price above the current market price, and the order will be executed if the price of the cryptocurrency rises to that level.

Say you have bought 1 Bitcoin at $50,000, and you believe the price will increase. You decide to set a take-profit order at $60,000.

If the market price of Bitcoin rises to $60,000, your take-profit order will automatically trigger a sell order for 1 Bitcoin at the market price. This will lock in a profit of $10,000, or 20% of your initial investment.

Stop-Limit Order

A stop-limit order is a type of order that combines the features of a stop order and a limit order. It triggers a limit order to buy or sell a cryptocurrency when a specified stop price is reached, but the order is filled at a specified limit price or better.

Suppose you have bought 1 Bitcoin at $50,000, and you want to limit your potential losses if the price drops, but you also want to ensure that you get a certain minimum price for your Bitcoin. You decide to set a stop-loss order at $45,000 with a limit price of $44,500.

If the market price of Bitcoin drops to $45,000, your stop-limit order will automatically trigger a limit sell order for 1 Bitcoin at $44,500. If there are buyers at $44,500 or better, your order will be filled at the best available price.

If the market price drops below $44,500, your order may not be filled, as the limit price is the minimum price at which you are willing to sell your Bitcoin.

After all, is said, traders can choose the type of order that best fits their trading strategy and risk tolerance. Remember that different exchanges may have different terms for these orders, so it’s essential to familiarize yourself with the platform you’re using before executing trades.

Understanding Crypto Exchange fees

As stated earlier, Exchanges make money by charging fees for their services. Below are some fees you’ll probably pay when using a crypto exchange.

Trading Fees

Trading fee is the most common fee charged by cryptocurrency exchanges. It is a fee charged when a user buys or sells a cryptocurrency on the platform. The fee is usually a percentage of the total value of the trade and can range from 0.1% to 0.5% or more.

The amount charged depends on the type of asset being traded (e.g., Bitcoin vs. Ethereum), how much volume is traded in each transaction (e.g., $1 million vs. $100), and other factors such as discounts offered through loyalty programs or promotional offers from exchanges.

Generally speaking, higher trading volumes will result in lower trading fees per trade due to

Deposit/Withdrawal Fees

These are the charges imposed by exchanges for depositing or withdrawing funds from an account on their platform – typically calculated as a flat fee per transaction rather than a percentage-based fee like trading fees.

Deposit fees typically vary depending on the payment method (e.g., credit card vs. bank transfer). For example, depositing via bank transfer may have a higher fee than depositing via cryptocurrency.

Withdrawal fees are also often based on the withdrawal method and cryptocurrency. Due to individual network fees, withdrawal fees may differ and can be higher for some cryptocurrencies.

Some exchanges may impose minimum deposit/withdrawal amounts before processing any transactions; these amounts vary between different platforms, so it’s important to check before initiating any transfers.

Listing Fees

Listing fees refer to the cost of having an asset listed on an exchange’s marketplace.

Listing is typically done via a bidding process that involves submitting applications containing information about the asset and its issuer and paying certain “listing” costs associated with getting approved onto that particular exchange’s marketplace.

These costs can range anywhere from several hundred dollars to thousands.

In some cases, listing costs may be waived if certain criteria are met by applicants, such as having high liquidity levels already present in existing markets before applying for listing approval – this helps protect investors while also preventing scams/fraudulent activities from taking place within individual markets.

Conversion fees

You may be charged a conversion fee if you want to exchange one cryptocurrency for another on the platform. This fee is typically a percentage of the total value of the conversion and can range from 0.1% to 2%. Keep in mind that not all exchanges charge conversion fees.

Inactivity fees

Some exchanges charge a fee for users who do not actively trade on their platform. This fee is usually charged monthly and can be a flat fee or a percentage of the user’s account balance.

It is worth mentioning that each exchange has its own fee structure, and it is always recommended to review the fees before signing up for an exchange or making a trade. Additionally, fees can change over time, so staying updated on the latest fee information for your preferred exchange is a good idea.

How to Sign Up for a Crypto Exchange

Generally, crypto exchanges have similar, straightforward sign-up processes irrespective of their underlying architecture.

Let’s quickly review how to sign up for a crypto exchange in simple, actionable steps.

Step#1: Choose a Cryptocurrency Exchange

The first step to signing up for a cryptocurrency exchange is to choose the right one for your needs. You should consider fees, security, trading options, customer service, and liquidity.

You can research these topics online or ask friends and family who have used exchanges in the past for recommendations. Once you’ve narrowed your list of potential exchanges, it’s time to move on to step two.

Step#2: Create an Account

Once you’ve chosen an exchange that fits your needs, it’s time to create an account. Most exchanges require you to provide personal information, such as your name, email address, and phone number.

The registration process may also involve verifying certain documents, such as government-issued photo identification or proof of residence, like a utility bill or bank statement.

In addition to providing personal information during registration, many exchanges require users to set up two-factor authentication (2FA) for added security measures before trading can take place.

Step#3: Fund Your Account

After setting up your account and verifying your identity with the exchange provider, it’s time to fund it so that you can start trading cryptocurrencies.

Depending on your specific exchange platform, there may be several ways to achieve this, including bank transfers or credit/debit card payments, wire transfers, or PayPal payments.

Ensure you understand any fees associated with an exchange platform’s funding methods before deciding which way works best for you based on the cost and convenience factors involved with each option available.

Step#4: Start Trading

Now that everything is set up and verified, it’s time to start trading.

After selecting which cryptocurrency coins/tokens/assets will be traded, you must decide how much you want to buy and sell and at what price, depending on perceived market conditions.

It’s important to always stay aware of changes in value assets being traded to make the most informed decisions possible when placing orders within crypto markets.

Lastly, don’t forget to keep track of all profits and losses incurred during trades so you know exactly where you stand when taxes are due.

Considerations for Choosing a Crypto Exchange

Before jumping into choosing a crypto exchange, consider the following:

Security

Ensure the exchange implements strong security measures, such as two-factor authentication, encryption, and cold storage, to protect your assets. Consider choosing an exchange with a proven security track record, as this can reduce the risk of hacking or theft and ultimately give you peace of mind.

Regulation

Check if a relevant financial authority regulates the exchange, as this can provide an extra layer of security and protection for your crypto asset(s).

Trading Fees

Compare the fees charged by different exchanges, including trading fees, deposit and withdrawal fees, and any other fees. An exchange offering favorable fee structures for your trading needs should be on your list.

Payment options

Consider the availability of payment options, such as bank transfers, credit cards, and digital wallets, and make sure that the exchange accepts the payment methods you prefer.

Customer support

Look for an exchange with good customer support, as you may need assistance with various issues, such as account setup, trading, or withdrawals. An exchange with multiple support channels, such as email, live chat, and phone support, should be an optimal choice.

User interface

Evaluate the user interface and ease of use of the exchange’s platform. A user-friendly platform can simplify the trading process and make buying, selling, and trading cryptocurrencies easier.

Availability of cryptocurrencies

Consider the availability of the cryptocurrencies that you want to trade. Some exchanges may only support a limited number of coins, while others offer a more comprehensive selection.

Reputation and trustworthiness

Consider the reputation of the exchange and its history in the industry. Look for an exchange with a solid security, reliability, and customer satisfaction reputation.

Wrapping up and examining these considerations when selecting a cryptocurrency exchange is critical to ensure that you are making a safe and educated selection. Due diligence can help you lower your risk exposure and raise your chances of success as a trader.

Final Thoughts

Cryptocurrency exchanges are a vital cog in the wheel of the crypto industry. There is a variety to choose from. Each exchange has its unique features.

As the crypto market evolves and grows in popularity, more exchanges are expected to enter the market, offering new services and features, further blurring the thin line between good and bad service providers. In light of this, going forward, it is important to do your research when selecting an exchange so you can be sure you are getting the best experience for your individual needs, come what may.