Learn which is the exchange that best suits your needs and how to choose it.
Binance and Poloniex are among the best exchanges evaluated.
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There is currently a wide range of different exchanges for trading, but are they all really good? In this article we gave ourselves the task of making a compilation of the concepts and characteristics that you need to take into account when choosing a good exchange to trade with bitcoin and cryptocurrencies. In addition, we show you a list of the best exchanges today.
Regarding trading, keep in mind that, although it is not exclusive to professionals, it is something that requires having a certain level of education regarding the subject. This is because, no matter which exchange you choose and how good it is, if you do not have the necessary knowledge, you will only be betting with your money.
Trading bitcoins and cryptocurrencies is based on speculating on the price of a crypto asset against a fiat currency or other cryptocurrency. These operations can be carried out manually, executing exchanges between cryptocurrencies without more, or through exchanges that offer all the tools that professionals need.
This type of trading, if you already have experience in the world of traditional stock exchange and forex, does not vary at all. Perhaps in the way of seeing the results, given that cryptocurrency exchanges do not usually handle the concept of “pips” that is widely used in brokers or exchange houses in the Area of Forex. This is because a more direct formula is used, which is the difference between the entry price and the starting price, whether you go long or short. Although, of course, you can find platforms that if they handle it.What is and how does a cryptocurrency exchange work?
An exchange is basically a platform on which you can trade cryptocurrencies. In it you can operate with the different cryptocurrencies that are quoted there, or also, operate against fiat currencies.
These exchange platforms are of all kinds, from the basic ones that focus on the mere exchange between cryptocurrencies, as is the case Changelly, to the advanced ones such as Binance that allow trading with leverage and derivatives of cryptocurrencies. You can see a list of the different types of exchanges here. Binance Exchange charts. Source: Binance.
With regard to how it works, there is a determining aspect in the operation of an exchange specialized in trading, and that is the centralization or decentralization of it. It will depend on this whether you need, or not, to store cryptocurrencies in a wallet controlled by the exchange to be able to make exchanges.
Let’s take two examples:
- Bitfinex: This centralized exchange allows you to trade with the balance you have within your account. That is, before making a trade, you will have to deposit the corresponding cryptocurrency within the platform, from whose address you will not handle the private keys. This means that the one who really owns the cryptocurrencies is Bitfinex.
- Binance DEX (Decentralized Exchage by its translation): A decentralized variant of the giant Binance, allows trading operations, but with the exception that the funds will be managed directly from your portfolio, that is, you maintain the support and protection of the funds. That is, you will need to connect your wallet to the DEX to start trading. This type of exchange has seen a boom along with the growth of the DeFi ecosystem.
Whether centralized or not, each offers its advantages and disadvantages. In the centralized ones you may not have the real power over the crypto assets, but it allows you to handle operations such as leverages, which is basically money lending, something very uncommon in decentralized exchanges. How a cryptocurrency exchange sets the price
The way an exchange sets the price of an exchange is through the free market: supply and demand. With every purchase order you place, for example, when executed, you are actually buying from someone else who placed a sell order. Exchanges, in theory, do not seek to define the price of an exchange pair, they only serve as intermediaries.
Answering this question can be quite abstract, since the value of one exchange over another is defined by you according to your own weightings. However, there are a number of criteria that help you get an idea of how to choose an exchange. Identity verification
This process, sometimes, tends to clash a little with some of the values or principles that cryptocurrencies defend such as privacy, since, by doing an identity verification, clearly the exchange will be able to know how much money you have within the platform and how you handle it. These checks are due to existing regulations that aim to prevent money laundering and terrorist financing. By doing the identity verification, you will have enabled the trade or you will be able to handle larger amounts, as the case may be. Source: grafvision / elements.envato.com
Likewise, there are usually different levels of verification that can limit the amount of money you can trade. For example: Binance allows you to trade 2 BTC daily in case you do not do the verification process. Going through the first level, this daily limit increases to 100 BTC; thus, until reaching the last level, where there is no trading limit.
As you can see in the example, some exchanges allow trading without the need for KYC-AML verification, even in decentralized exchanges, registration is not even necessary. Just connect your wallet and you can start trading. What cryptocurrencies you work with
At this point, more than important, certain aspects must be considered. Some exchanges usually offer the promise of working with more than 100 different cryptocurrencies. However, it is necessary to take into account, which of it are allowed for deposits and withdrawals, as well as the minimum amount established to withdraw.
Likewise, you must take into account, beyond which cryptocurrencies you work with, the available exchange pairs. Since the cryptocurrencies available on an exchange are not always available to exchange with the rest of the cryptocurrencies that the platform uses. Exchange volumes
This is, perhaps, the main feature by which you can choose an exchange to trade cryptocurrencies. This is due to the fact that, if an exchange does not present trading volumes, it means that there is little mass of user and does not have enough liquidity for withdrawals.
If you want to know the exchange volume of an exchange, you can use tools such as CoinMarketCap, of which, we leave you a tutorial to learn how to analyze the data that it provides you. Security and protection of cryptocurrencies
This is another important element to consider when choosing an exchange. This is because, in general, centralized exchanges require cryptocurrencies to be deposited within the platform in order to trade. That is, the exchange will be the one who protects the cryptocurrencies, and the part of the security that remains on your side is to apply protection measures on your account, such as 2-factor authentication, authentication by email or cell phone, security password for withdrawals, among others. Works with fiat currency and payment methods
As we mentioned before, there are exchanges that focus on mere trading between cryptocurrencies, as well as trading cryptocurrencies to fiat or vice versa. In the latter case, you will need to find out what forms or payment methods it offers for deposits and withdrawals in national currency. Trading tools available
This point may not be decisive when choosing an exchange, because you do not necessarily need an all-in-one platform to trade, since there are specialized platforms in this area such as Trading View. What you can look for is the type of orders an exchange offers. Leverages
Leverages, or margin trading, as you can also find them, are basically loans that allow you to open larger orders.
When knowing whether or not an exchange has leverages, it is important to consider the levels it offers along with the corresponding commissions. Commissions