How to Select the Best Cryptocurrency Exchange

Most crypto exchanges offer a limited number of cryptocurrency pairs. They usually list the top currencies with Bitcoin (BTC), Ethereum (Ether), Ripple (XRP) and Bitcoin Cash (BCH) being the top four in 2019.

If you choose an exchange with limited coin pairs, you will have obvious trading limitations. On the other hand, coin pair diversity will offer more trading options. It also provides more alternatives in case one of the cryptocurrencies faces regulatory or security-related issues.

The crypto world is abound with bad actors that have swindled crypto investors of millions of dollars so far. In 2018, Taiwanese exchange Cobinhood duped its investors in a classic pump-and-dump scheme. In the beginning, they listed a hundred little-known coins, which were later removed leaving investors with illiquid assets.

Usually, investing in exchanges promising unrealistic prices and with website’s starting with HTTP, not HTTPS, is a bad idea. Find out what online crypto communities such as Reddit are saying about the crypto exchange. Try to learn about their history of falling victim to hacks. Also, verify their registration and contact details if possible.

2018 was a record-breaking year for crypto exchange hacks as hackers stole $865 million at the rate of $2.7 million per day. You must ensure that the exchange employs the following security measures to avoid theft

• Use cold wallets to store the majority of the coins offline and away from hackers. For example, Coinbase exposes only about 2% of its coin holdings to the internet.
• Use 2-factor authentication (2FA) such as Google Authenticator or SMS to ensure safe logging in and out of trading accounts.
• Email encryption and verification for each transaction ensuring the highest level of security.

Trading volume and liquidity go hand in hand. The higher the number of traders is, the quicker your order (buy/sell) gets filled as more people back the current price trend. Thus, higher volume often leads to competitive pricing, providing you with more scope for trading.

Most crypto exchanges with multiple crypto coin pairs have a better trading volume. Smaller exchanges, on the other hand, have low trading volume, resulting in supply-demand issues. As a result, buyers have to pick up the tab for the price slippage with a higher transaction cost than the original price.

Most exchanges use a “Maker-Taker” system to charge trading fees. As Makers provide liquidity by placing limit orders which take longer to fulfill, Maker Fee is lower than Taker Fee. Exchanges may also offer rebates to Makers when their orders get fulfilled. Takers, on the other hand, remove liquidity from the market as their orders get fulfilled quickly.

Apart from these, exchanges may also charge deposit and withdrawal fees. Usually, reputed and secure exchanges with large trading volume may charge higher compared to the smaller exchanges. Make sure to check the fees details first, and stay away from exchanges that don’t disclose their fee structure.

Exchanges with Know Your Customer (KYC) and Anti-Money Laundering (AML) verification procedures tend to reduce the risk of fraud or illegal activity. In other words, it is difficult to recover your money from an anonymous exchange if things go south. That’s why most countries such as the USA and UK already require investors to comply with identity verification laws while making deposits and withdrawals.

As more money enters the crypto trading system, these regulations will become more commonplace and stringent. A recent study reveals that 88% of crypto exchanges actually want these regulations. So, you are better off with a crypto exchange with regulatory compliance.

Make sure the cryptocurrency trading software has a user-friendly interface so that you can learn to use it quickly. The chart should have common analytical indicators such as Bollinger Bands, Exponential Moving Average (EMA), rates of conversion, and trading volume among others. You should also be able to integrate third-party APIs, crypto trading bots, and other tools into the core trading platform to customize it to your liking.

Some exchanges may allow you to deposit and withdraw funds in cryptocurrencies only, while others may allow you to use fiat currency options as well. For example, Binance allows you to buy crypto coins with fiat currency while ShapeShift will not. Sometimes, the fiat currency payment options may not go beyond online payment gateways such as PayPal or Stripe.

Usually, a white label crypto exchange with proper identity verification process will provide traditional payment options such as credit card, debit card, and wire transfers. However, these transactions will often take longer time owing to complex regulations and paperwork. Most exchanges will display payment options and charges on their website. Make sure to check those out first.

Make sure to find out if the crypto exchange has a physical address that you can verify. As far as possible, pick up an exchange located in your own country or at least a jurisdiction you are familiar with.

Transactions and verifications within the same country are relatively quick and hassle-free. For example, some international crypto exchanges are still hesitant to accept U.S. customers owing to strict KYC/AML regulations in the country.

If it is just a fly-by-night operation functioning out of a P.O. Box, the chances of fraud are significantly higher. Furthermore, getting your money back in case of a scam is impossible owing to jurisdictional ambiguity.

Lastly, the exchange must offer 24/7 customer support as crypto trading takes place round the clock. You will need to connect with the customer support in the event of trading issues, transactions, verification process, and cryptocurrency exchange software related issues.

However, not many exchanges offer telephonic support. Most stick to email-based support with only a few exceptions such as Coinbase. You can check online communities to find out what users are saying about the quality of their customer support before signing up.

You will need to take various factors, ranging from security to geographical location, into account when selecting a cryptocurrency exchange. When done right, it can offer the perfect launch pad for your crypto trading career. Hopefully, these 10 pointers will lessen your hard work to a great extent. If you need more information on how exchanges work or how to launch your own exchange, drop your queries in the comments section below.