With the crypto industry now worth trillions of dollars, it's no surprise there are countless exchanges for investors and traders to choose from. But trusting a platform with your funds and finding one that offers you all you need can be tricky.
What, then, should you be considering when choosing a crypto exchange, and what are the red flags to look out for?
An Important Note on Crypto Exchange Security
Before we discuss what you should consider when choosing a crypto exchange, there's one very important thing to remember: no crypto exchange is 100% secure. While some are more secure than others and more trustworthy in general, there's always a slight chance of a successful cyberattack, regardless of which exchange you select.
We recommend that when you are not actively using your funds, you keep them in cold storage via a hardware wallet. This is especially necessary if you own large crypto holdings, as a single hack could drain your assets if your exchange-based hot wallet is targeted. Exchange wallets are good for short-term storage in between trades or stakes but shouldn't be your go-to for holding all of your crypto permanently.
Now, let's examine what you should keep in mind when searching for your perfect crypto exchange.
1. Supported Coins
If you're looking to trade various assets on an exchange, you must know whether your prospective platforms support them. Most popular exchanges support hundreds of different coins and tokens, including market giants and newcomers. But not all exchanges are the same, so you may find that one asset is supported on Exchange A, whereas this is not the case on Exchange B.
If you're particularly interested in new and upcoming coins, it's even more important to check whether they're supported. It can take time for newer assets to be listed by exchanges, with some deciding to steer clear of certain coins altogether. So, if you're looking to invest in newer cryptos or you've got your sights set on one specific asset, be sure that you know your prospective exchange supports it before getting started.
2. Fees
Fees are generally known as the bane of the crypto industry. Whether you're buying, selling, staking, or mining, there is always some kind of fee. While some exchanges charge next to nothing for their services, others ask for a hefty sum per transaction, which can be very frustrating.
For example, Bitmex charges super low maker and taker fees of 0.025% and 0.075%, respectively. On the other hand, Bittrex charges a maker and taker fee of 0.35%. While this still sounds pretty low, it can certainly add up over time, and very large transactions could see you losing hundreds or even thousands of dollars to fees.
There are also a few exchanges that don't charge trading fees, such as BlockFi. But some free exchanges come with other fees, so make sure you know exactly what you'll be charged for any action before setting up an account.
3. Security Features
This is an extremely important aspect of any cryptocurrency exchange. Crypto exchanges hold mammoth volumes of crypto for their users, making them a prime target for criminals. So, if you want to protect your assets as much as possible while they interact with an exchange, you must take note of the security features.
There are various green flags regarding a crypto exchange's security features. Two-factor authentication, cold fund storage, and wallet address whitelisting are just a few options on offer today. Naturally, you'll want to try and use as many of the available security features as possible on your chosen exchange to safeguard your assets effectively.
We have a piece exploring whether Coinbase is safe, as well as comparisons of exchanges like Binance and Kraken or Coinbase and Uphold to give you an idea of which big exchanges offer which safety features.
4. Fund Insurance
Many crypto exchanges offer fund insurance for those who lose funds via a technical issue or theft. Each exchange differs in its insurance, but choosing one that guarantees to insure your funds in conjunction with an official entity is beneficial.
Take Binance, for example. This platform offers insurance for U.S dollar deposits up to $250,000 within the United States. The platform works with the Federal Deposit Insurance Corporation (FDIC) to make this possible.
Fund insurance does not apply to financial losses suffered through market changes. When you invest in cryptocurrencies, you're effectively acknowledging the risk of fund loss via price fluctuations, so exchanges cannot compensate for this.
5. Ease of Use
If you're new to the crypto industry, you'll want to choose an exchange that isn't overwhelming. Some exchange interfaces can be very intimidating and confusing. This could even put you off crypto trading entirely. But there are many exchanges out there that offer simple, straightforward interfaces for all experience levels.
Some exchanges offer two different interfaces for experienced and novice traders. For example, Coinbase offers a straightforward interface via its regular exchange but also allows users to trade via Coinbase Pro. As the name suggests, this version of the exchange is far better suited to experienced and professional traders who understand the market well. Binance also offers two different user interfaces via its smartphone app.
6. Geographical Availability
As with many websites, crypto exchanges are subject to geographical availability. Because some countries, such as China and North Korea, have banned or restricted crypto trading, exchanges can only exist within legally permitted areas. On top of this, some exchanges do not have a license to do business in certain countries (due to international restrictions), limiting their availability further.
Many of the biggest crypto exchanges are available in many locations. Kraken, for example, is available in most countries worldwide, with some exceptions, including Iraq, Syria, Tajikistan, and North Korea. In certain countries, such as Russia and Yemen, an account can be opened but may not be able to be used for trading.
Additionally, differing local financial laws can result in partial availability. For instance, you can use Binance in Europe for every function except derivatives trading, while there is a U.S.-specific version of Binance to comply with government regulations. Certain digital assets can also be limited based on the trader's location.
7. Reputation
An exchange's reputation is another important factor you should consider. Some exchanges have glistening reputations, while others are known for suspicious activity, poor security, or even illegal dealings. Even if an exchange is popular, it isn't necessarily safe or trustworthy.
For example, Coinbase is a generally secure platform used by millions of people but has been caught a few times carrying out illicit activities.
It's always worth researching any exchange you're considering to determine whether it's wise to sign up.
Your Funds Are Important, and So Is Your Exchange
When considering where to put your funds and carry out all your crypto-related activities, research is very important. While an exchange may seem like a good fit, certain factors may affect its availability, trustworthiness, and ease of use. So, if you're looking to try a new crypto exchange, take note of the considerations above to give yourself the best chance of choosing the best option.