What is a cryptocurrency exchange?
Cryptocurrency exchanges are websites that allow users to exchange fiat money or cryptocurrency against other types of cryptocurrency. The functionality of exchanges vary greatly.
Some of them are services that allow users to exchange one type of coin for another one for the rate provided by this service. In order to use some of these exchanges, it is not even necessary to register! The caveat here is that the exchange rate is usually worse than on competing types of exchanges.
However, usually crypto exchanges are sophisticated platforms that provide a wide set of tools (graphs with charting option, indicators, different trading options) for traders. The exchange rate is determined by demand and supply. Liquidity in such exchanges depends on the total volume and number of users.
What to look at when choosing an exchange
In case with centralized exchanges, you will be putting your digital money on what is essentially a wallet of an exchange. Technically, it can just shut down the operations and take your money. End of story.
This is why it is important to use exchanges with good track record only. Don’t fall for shady promises of new exchanges, such as extraordinarily low fees. Do your research, throw away all the marketing talk and decide, whether the exchange in question can be trusted.
What to look at:
- Exchange age
- Reviews both from ordinary users and reliable sources
Limits & order value
In case you want to exchange large amounts of cryptocurrency, you have to look at the value of the largest sell and buy orders. In case the market volume is insufficient, you won’t get the optimal exchange rate. Additionally, if you want to sell cryptocurrency for fiat, you have to keep in mind that most exchanges have limits for withdrawal.
What to look at:
- Withdrawal limits
- Market volume and biggest orders
Fees is the only way most exchanges profit. Even when dealing with cryptocurrency-to-cryptocurrency trades, users will have to pay a fee, which is usually fixed. It usually is several percent of the trade value. However, in case the user is exchanging fiat for Bitcoin, for example, the fees will be even higher due to the fees of banks and systems like PayPal.
What to look at:
- The value of fee
Some exchanges are completely anonymous. The other ones are semi-anonymous, asking just for the e-mail address or mobile phone. Most commonly though, exchanges request your personal information together with a picture of a valid ID as well. This allows them to be fully regulatory compliant, but, of course, makes your trades not anonymous.
What to look at:
- If the exchange has an obligatory KYC procedure
Users want their trades to be executed as fast as possible. Thankfully, most exchanges are very fast.
The only slowdowns can occur when dealing with fiat. Exchanges are fast; banks are not. If you are buying digital assets using funds in your bank account, get ready to wait.
Suppose you wanted to buy a certain altcoin. In this case, what would be the point of using the exchange that does not support it, even if it fulfills all the other requirements?
One more point to consider: even if the coin you need is listed, it does not mean that you will be able to get a reasonable exchange rate. If the market is not liquid, you will have to pay a lot more for a coin than its average price would suggest.
What to look at:
- Number of coins on the exchange
- Volume of markets (more is better)
Types of cryptocurrency exchanges
“Cryptocurrency exchange” is a wide term. Many services get referred to as exchanges, even though their functionality may vary significantly.
There are several ways to classify these services. These are the main types of exchanges by supported type of assets:
- Fiat-to-crypto exchange – allows users to buy cryptocurrencies with fiat. Usually, such platforms support bank payments and credit cards. Sometimes, they also support services like PayPal.
- Crypto-to-crypto exchange – does not support fiat money. However, usually such exchanges still have a pair with stablecoin, such as USDT. This means that you can trade Bitcoin against the equivalent of USD or any other fiat currency.
Another way to categorize exchanges is by the type of trades:
- Traditional exchanges – the most common type. The price is dictated by users, and it is equal to market settlement price – a point where buyers and sellers come to a midpoint. However, the exchange acts as a middleman in this case.
- Crypto brokers – aid users to buy and sell cryptocurrency. The price is determined by brokers and is usually a little higher than the market price, because of their commission.
- P2P platforms – the trades happen directly between the buyers and sellers, bypassing the exchange.
Most popular cryptocurrency exchanges
7 best exchanges
Perhaps one of the most well-known cryptocurrency trading platforms thanks to their excellent marketing, and rightly so. The exchange offers low fees (0.1%) and has a great amount of liquid markets.
An interesting differentiating point of the exchange is BNB – Binance Coin. The users of the coin get a further discount when using BNB.
- Wide selection of coins
- High volume
- Has its own token
- No fiat support
OKEx is a Chinese exchange founded in 2014. It has high volumes and offers a decent selection of coins. The exchange is a direct competitor of Binance and in some aspects mirrors its strategy. For example, both exchanges are now based in Malta.
Much like Binance, the exchange has its own token – OKB – which gives its holders certain privileges, such as reduced fees.
- Low fees
- Has its own token – OKB
- Not available in a number of countries, including the USA and Hong Kong
Huobi is an exchange based in San Francisco. As for now, Huobi is available exclusively in China and US. The fees of the platform are extremely low at 0.1% for fiat-to-crypto trades and 0.05% for crypto-to-crypto trades. The platform is known for its 24/7 customer support and has a great reputation.
- Low fees
- Good customer support
- Limited regional availability
Coinbase is perhaps the most well-known cryptocurrency asset trading platform. It allows US residents to purchase crypto using credit cards and bank accounts. The platform is not available in every region.
Coinbase aims to be fully regulatory compliant, which has its own disadvantages. For example, every user must provide a certain amount of personal information. What’s more, Coinbase has shut down user accounts in the past if their transactions seemed suspicious to the platform for some reason. This is why it might be an especially bad idea to store your crypto on Coinbase (Don’t know where to store coins? Check out our ultimate guide!).
- Supports fiat
- Coinbase Pro offers reduced fees
- Obligatory KYC procedure
- Ties to banking industry
- Relatively small token selection
- Limited geographical availability
Founded in 2011, Kraken is one of the oldest digital asset exchanges. It supports a wide range of fiat currencies and allows users to deposit money using bank transfers and credit cards. The platform also has some advanced features, including margin trading.
However, these features come at a price. The website can sometimes feel slow, customer support is somewhat controversial, and user interface is counterintuitive.
- Support for fiat currencies
- Good reputation
- Advanced features
- Not beginner-friendly
- Questionable customer support
Poloniex is a US-based exchange that has comparatively low fees. The service has a good security measures and comparatively high volumes.
However, it also has some serious drawbacks. First of all, its customer support leaves a lot to be desired. Second, they have an ability to terminate your account without any explanation. The last but certainly not least, it has a system of tiers, where every higher tier allows you to trade more, but also requires more private information to be submitted.
- Competitive fees
- Good security
- No support for fiat currencies
- Tier system demanding private information
- Subpar customer support
Bittrex has a good reputation in crypto community thanks to its robustness. It offers stellar customer support and good security. What’s more, it also has a large coin choice – over 100 tokens are listed.
The main drawback of the platform is that it does not support fiat currencies.
- Good security
- Comparatively wide coin selection
- Great customer service
- No support for fiat
There are several differentiating points of ShapeShift. First of all, the exchange is decentralized, meaning that at no point does your cryptocurrency is in possession of exchange itself. Another, perhaps even more interesting feature of the platform is that it does not require registration.
- Requires no registration
- Does not support fiat
- Limited tools
Gemini is an exchange founded by the Winklevoss twins, who currently are two of the most prominent personalities in the crypto space. Unlike many other exchanges, the selection of coins is pretty scarce, with only Bitcoin, Ether and USD available.
The main selling point of the exchange is that it is fully regulatory compliant in 42 US states, Canada, Hong Kong, Japan, Singapore, South Korea and the UK. However, only users from these regions can use the platform to its full potential.
- Deposits and withdrawals are free
- Founded by Winklevoss twins
- Limited regional availability
- Small coin selection
LocalBitcoins is completely different from the usual exchanges. It is a P2P marketplace that allows anyone to sell or buy Bitcoin or sell it for fiat in your area. Here is how it works.
Let’s suppose user A wants to sell Bitcoin for cash to someone in the same country. He places an offer on LocalBitcoins, and when someone responds (user B), the funds get locked on the exchange. Afterwards, user A and user B meet, and user B pays the sum listed in offer. After the seller gets his money, he confirms it, and the exchange transfers money to user B.
In order to make the platform more secure, LocalBitcoins has made a rating system.
- The platform supports virtually every type of payment.
- It might not be possible to buy Bitcoin if there is no one selling it in your area.
- The platform is not the most secure, especially when dealing with cash payments.
Coinmama is a platform similar to LocalBitcoins that allows its users to purchase Bitcoin or Ether with credit card or MoneyGram. It is fast and has a user-friendly user interface.
However, there are also some caveats. The service only allows you to buy, and not sell Bitcoin. What’s more, users have to pay extra when using a credit card.
- A variety of cryptocurrency purchase options
- Limited functionality in certain locations
- Extra fee for credit card usage
- No sell option
Should you store your coins on an exchange?
Suppose you purchased some amount of Bitcoin (or any other coin) on your favourite exchange. Should you just leave them in your account on the exchange? No. You should never do this – here’s why.
Most exchanges are centralized. If you store your funds in an account on an exchange, they are actually stored on a single wallet of the platform. Because many people have accounts, this wallet becomes a big target for hackers. Successful attacks on such wallets have happened before and will continue to happen. At the time of publishing, one of the most recent cryptocurrency exchange hacks was Binance hack.
So, where should you store your coins? It depends on what amounts of coins and for what purpose you are willing to store it. There are many types of cryptocurrency wallets – find out which one suits you best.
Frequently asked questions
Can you exchange cryptocurrency for cash?
Yes! Use fiat-to-crypto exchanges like LocalBitcoins.
What cryptocurrency exchange has the lowest fees?
Binance and Coinbase Pro have low fees. Coinbase Pro has slightly higher trading fees; however, it doesn’t have a withdrawal fee. Binance, on the other hand, has low fees across the board and discount when dealing with BNB token, but also has a withdrawal fee.
Which cryptocurrency exchange has the most coins?
Remember: not only do you want your coin to be listed, but also for the market to have good volume and liquidity. When considering both coin count and market liquidity, Binance is a good option, with more than 450 markets, most of them pretty liquid.
What’s the biggest cryptocurrency exchange?
The volume of cryptocurrency exchanges all the time. It is not worth writing which one has the biggest volume right now, because the information soon would be irrelevant. Instead, you can check the real-time information here.
Which cryptocurrency exchange accepts credit card?
Which cryptocurrency exchange accepts PayPal?
Although less exchanges support PayPal than credit cards, there still are some that do. For example, Coinmama supports this method of payment.
Are there cryptocurrency exchanges without KYC?
Yes! ShapeShift is an example of such exchange.
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