You Can’t Go with Whatever
When cryptocurrencies like Bitcoin came onto the scene, early adopters would acquire tokens through mining or exchange them on online forums. If you’re not tech-savvy, you’ll want something more straightforward. Using a cryptocurrency exchange is more suitable, as you can access the cryptocurrency markets from anywhere. A cryptocurrency exchange is essentially a digital marketplace where you can buy and sell digital assets like Bitcoin at the latest price. Leading cryptocurrency exchanges are easy to use and have varying coin offerings. It goes without saying that not all platforms are created equally. The question now is, what sets them apart?
Priority Management: Key Factors to Consider When Choosing a Cryptocurrency Exchange
Selecting the right cryptocurrency exchange is one of the most important tasks that any investor or trader must bring to fruition. It’s a complex decision, as there are many factors to take into account. Some of the most important ones are:
Authenticity & Security
Authenticity is the assurance that a cryptocurrency exchange is what it claims to be. If you can’t find out who is running the platform, be on your guard. Suppose you give out personal information (name, date of birth, address, and identification number). In that case, you provide instant access to your accounts – you become the victim of identity fraud. All that glitters isn’t gold, so even if the trading platform seems legitimate, it could be fake. Before you sign up and create an account, check the cryptocurrency exchange’s social media pages, its terms and conditions, and its functionalities. Additionally, check reviews on different sites.
Not all cryptocurrency exchanges do a good job of protecting funds and personal information from hackers and fraudsters. As a matter of fact, countless platforms have had security issues over the past years, so you’ll want to go with higher security. Some digital marketplaces offer basic protection like two-factor authentication, which neutralizes the risks associated with compromised passwords. Other cryptocurrency exchanges require customers to complete a KYC (Know Your Customer) process to eliminate impostors. They also monitor cryptocurrency transactions to identify unusual or suspicious activity. Additional layers of code must be authenticated to enable actions like freezing your account.
Last but not least, take into account liquidity. Liquidity refers to the ability to exchange between two assets without much difficulty as far as value is concerned. To check Bitcoin’s liquidity, say, check its trading volume and price. If the trading volume grows or is substantially higher than in the past, the market is liquid. A cryptocurrency exchange should have a high volume of orders via its books on any given day to ensure price stability. Simply put, the presence of liquidity safeguards traders and investors from the effects of volatility. Sufficient liquidity also ensures a fair market price for all participants.
A cryptocurrency exchange might not list all the tokens you want to buy. Some might not be available to US traders, while others might not be available in certain states. Bitcoin and Ethereum are the most well-known cryptocurrencies, but there are several other options worth considering, such as Cardano, Litecoin, Solana, and Tether. Remember that no exchange will make trading pairs available for all of them. Conventionally, cryptocurrencies with the highest market cap – worth more than $10 billion - are more likely to be traded on reputable exchanges. Stablecoins are a great way to move in and out of positions, as they protect your investment portfolio from sudden drops in the value of digital assets.
Exchange tokens are as valuable as the platforms they’re tied to. They’re created by centralized cryptocurrency exchanges, offering various benefits such as higher trading volume and liquidity. Exchange tokens can be used to pay deposit or withdrawal fees. You can receive some coins for free by mentioning the exchange on social media. Exchange tokens are often referred to as utility tokens because they help raise capital and liquidity and, in some cases, serve as governance tokens. You can purchase the tokens via the parent exchange or, rarely, on rival exchanges. Depending on the platform, some coins are available for purchase in some regions exclusively.
You have the choice between centralized and decentralized cryptocurrency exchanges. As the name clearly suggests, a centralized exchange is owned and operated by a private company, so it’s subject to the laws and regulations of the jurisdiction where the business is based. It’s necessary to sign up and open an account to trade digital assets. A third party oversees the transactions and secures the cryptocurrency for participants. You can take advantage of your investments using borrowed money from the exchange. This is margin trading. The margin represents the collateral you must deposit with the exchange to cover the credit risk.
A decentralized exchange relies on a system of smart contracts to function. You can buy and sell cryptocurrencies in a non-custodial manner without the need for an intermediary. Most decentralized exchanges support yield farming, staking, and loans. There’s no need to transfer your digital assets to a third party, which means you’re better protected against fraud, hacking, failure, or theft. A decentralized exchange doesn’t exercise censorship, so more cryptocurrencies and digital assets are available on such a platform. Anyone is free to join without requesting permission. Unfortunately, you can’t rely on a support team in case you lose your private key or your funds go missing.
User Interface & User Experience
As a rule, cryptocurrency exchange developers strive to provide users with a seamless experience. The interface is straightforward, simpler to use, not to mention aesthetically pleasing. You can have accounts on different platforms because they have different strengths; see which one best matches your trading strategy. A user-friendly cryptocurrency exchange is important not only from a navigational standpoint – it facilitates trading, and the more it’s used by others, the more liquidity there is. Centralized exchanges tend to be faster and easier to use, with trades settled almost instantly. Decentralized exchanges are slower and have a higher learning curve.
Investing in cryptocurrencies like Bitcoin is the right move, but you can’t go with any exchange you come across.