How to Choose a Crypto Exchange
Choosing the right cryptocurrency exchange if very important. Picking the wrong platform could potentially cause headaches like losing access to your crypto, having your private information stolen, or worse having your crypto stolen. Smaller exchanges may limit your withdrawals or make you wait long periods before allowing you access to your coins. And in my experience, most exchanges have minimal customer service. So be careful about leaving coins on an exchange. Transfer most of them to a wallet you control. (More about wallets in Course 3 – All About Wallets).
Tip: I regularly keep a small amount of bitcoin and ether in an exchange wallet for quick access.
Note: This course only discusses centralized crypto exchanges. Decentralized exchanges will be explored in a more advance course. For people just learning about crypto, I don’t recommend using decentralized exchanges. Stick with a centralized exchange, but transfer your crypto to a wallet.
There are hundreds of crypto exchanges from which to choose all around the world. How does a person choose the right one? What makes one exchange better or worse than another exchange? Are some exchanges safer to use than others? Let’s find out!
To get started ask yourself these three questions and keep track of your answers.
- Do I want to buy crypto for investing and trading or do I want to buy crypto for other reasons like using it as currency.
- Do I need access to lots of different cryptocoins or do I just want to buy the most popular ones like bitcoin and ether?
- Do I plan to keep track of all my trades so I know how much crypto I own or how much I might owe in taxes at year end?
The answers to these questions will be used in the next lesson.
Now let’s consider the five fundamental features to consider when choosing a crypto exchange. Write down your answers or other things you learn along the way that will help you choose an exchange.
- Geographical location and restrictions
Review Lesson 1 – Legality of Crypto. Find out the status of crypto in your country and the fiat currency it supports. Even if crypto is legal in your country some exchanges may not be available for other reasons. For example, Binance is a popular exchange but they choose not to support US customers, because of strict US laws.
- Security and Reputation
With crypto losses from cyber attacks totaling billions of dollars, security should be at the top of your list when choosing a cryptocurrency exchange. Look for an exchange with two-factor authentication (2FA) and other security features like cold storage wallets for client funds, and Know Your Customer (KYC) verification. Exchanges with a good reputation usually have good security. Do a Google search on the exchange name and add ‘scam’ after the name. Look for news on security breaches.
Note: You’ll need Google Authenticator for 2FA.
- User interface and ease of use
Pick an exchange you’re comfortable using. Most exchanges have similar trading functionality and a little bit of a learning curve. The simplest exchange with the easiest user interface is by far Coinbase. However, Coinbase may not be available in your area. Most exchanges allow you to see the trading platform before creating an account.
- Available Cryptocoins and Liquidity
Most cryptocurrency exchanges allow investors to buy, sell, and trade major cryptocoins such as Bitcoin, Ether, Litecoin and Ripple. If you want to invest in lessor known altcoins you’ll need to look for an exchange that supports trading in that coin. Liquidity means there’s lot of people using the exchange. Low liquidity can make it difficult to buy cryptocoins when you want them.
- Trading Fees
Most exchanges charge a small fee for each trade. These fees vary based on the platform, and are usually based on a percentage of each trade. Fees may not be as important to longer-term investors as they are to short-term traders. Traders buy and sell more frequently and high fees can eat into their profits. On most exchanges I find it difficult to determine the cost of the trading fee because they are usually shown in terms of a cryptocurrency instead of my fiat currency. But since I’m a mid to long-term investor-trader, I don’t worry about trading fees. Coinbase has some of the highest trading fees, but I love the ease of use.