It can be challenging to trade cryptocurrency. A crypto exchange can simplify your life. There are many options, some of which have been around for only a few years. It is essential to choose the right one.
The first cryptocurrency was created in 2009, and early adopters gained coins by mining them or swapping them on online forums. You might want something more straightforward if you don’t have the time or technical knowledge.
Crypto exchanges are businesses that store crypto assets, match buyers and sellers, and make it possible to trade crypto just like stocks in a brokerage account. Most large-name stock trading firms like Schwab and Merrill Lynch don’t allow crypto trades.
However, trading crypto has become much more accessible than ever before. There have been many problems, including headline-making security breaches and trading fees far more expensive than other investors would pay to trade assets.
Trade as many coins as you like
There are over 10,000 coins available now, thanks to crypto’s growing popularity. Every digital asset is unavailable on every exchange, so ensure yours offers the ones you need. Consider whether you are primarily interested in bitcoin, Ethereum, and the few Defi tokens that drive smart contracts or if you prefer a more straightforward or complex menu.
Coinbase and Kraken are great places to start. They offer a large selection of tokens and coins that suit all investors. Coinbase allows you to trade more than 450 coins, while Kraken has more than 160 coins, including so-called “meme coins” like Shiba Inu and dogecoin.
Many exchanges allow you to trade obscure coins and often have their headquarters overseas. A word of caution: They don’t always adhere to U.S. laws and offer investors the same level of regulation as U.S. stock exchanges.
Compare the fees
You can trade stocks, bonds, and ETFs with your Schwab or Fidelity brokerage accounts, but there is no free lunch for crypto exchanges. Crypto exchanges charge fees for every trade, deposit or withdrawal. The fees charged for businesses can vary from 0% to 5%, depending on the payment method used and the type of transaction. Fee tiers are based on the total volume of trades you make over 30 days. The percentage that you pay falls the more trades you make. If you trade $1,000 worth of tokens 15x per month on Bitstamp, the fees would be $75. The cost for a single trade worth $20,000 would be $50.
There are fees at major U.S. exchanges
- FTX US–0% – 0.4%
- Coinbase – 0.5% to 4.5%; it varies depending on the type of transaction
- Kraken–0.9% – 2 %; depends on the type of transaction
- KuCoin– 0.0125%-0.1%
- BlockFi–0% Spread of 1%
- Binance. U.S.–0.1% to 5.5% depending on the method of payment
- Bitstamp – 0% to 0.5%
Ensure that there is enough liquidity
It is essential to find an exchange that has liquidity. This means quickly converting your cash into coins or vice versa without paying a significant markup. This is especially important in an age where prices can change rapidly in digital assets. You want to ensure your order is placed quickly and at a relative cost to the coin price you see on your screen. If you want to sell, it is the same thing.
This can be easily accessed by looking at the exchange’s trading volume: the higher the book, the better. CoinMarketCap, a crypto information website, provides the 24-hour trading volume of hundreds of businesses. Kucoin and Coinbase recently had the highest trading volumes.
Alexander Enter, the founder of MyCryptoAdvisor, says that you should also look for an exchange with a proven track record over at least five years. Also, make sure that it takes steps to prove that it has the assets it claims it holds on your behalf. Kraken has a button called “verify my auditor” that allows users to see the date when an independent audit verifies their coins.
Make sure there is enough security
Hackers are not unknown to crypto exchanges. Mt. Gox, one of the most well-known early exchanges, was bankrupted in 2014 after $460 million of customer assets was stolen. Last December, exchange BitMart received $150 million. BitMart stated that it would reimburse investors. It is common to avoid investing in crypto exchanges with a history of theft or cyberattacks.
Many crypto exchanges provide basic protections such as two-factor authentication. These apps, which are typically Google Authenticator and Authy, can be used to protect against phishing scams and other crypto theft. You can always look for more protection. Crypto.com’s Exchange mobile application supports biometric login. This uses fingerprint and facial identification to verify your identity.
Major exchanges like Kraken and Gemini require that you present a U.S. government-issued I.D. such as a passport, driver’s license, or another form of identification to open new accounts. This is done to increase security and prevent imposters. You will also need to authenticate when you sell or buy, change your funding level, or make significant account changes like freezing your account.
Check the insurance policy
Priority No. 1 should be digital security. This will keep hackers from stealing customer assets. 1 for a cryptocurrency exchange. The best ones will have a good insurance policy in an emergency.
Many exchanges have commercial crime insurance that covers theft, robbery, and destruction. Gemini, for example, claims it has $290 million in digital assets insurance to cover specific losses. Insurance coverages can vary between exchanges, so verify what you are covered. This information is available in your user agreement, which you receive when you sign up, and frequently in the FAQ section on exchange websites.
A second important question: Check to see if any exchange offers Federal Deposit Insurance Corp. protection of your cash. Your crypto trading account may not only hold coins. You will also need U.S. dollar deposits as you trade money in and out of the cryptocurrency market. This money should be kept in a custodial bank account at an FDIC-insured bank. It will protect deposits up to $250,000 in case of bank failure. Most significant exchanges offer this level of protection, but not all.
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