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A crypto exchange is a marketplace where you can buy and sell cryptocurrencies, like Bitcoin, Ether, or Dogecoin. Cryptocurrency exchanges work a lot like other trading platforms that you may be familiar with. They provide you with accounts where you can create different order types to buy, sell and speculate in the crypto market.
Some crypto exchanges support advanced trading features like margin accounts and futures trading, although these are less commonly available to U.S.-based users.
Others have features like crypto staking or crypto loans that allow you to earn interest on your crypto holdings. The best exchanges offer educational offerings to keep you up to date on all things crypto.
Different Types of Crypto Exchanges
There are two types of crypto exchanges: centralized exchanges and decentralized exchanges. Each category comes with its own advantages and disadvantages.
Centralized crypto exchanges (CEX) are managed by one organization. Centralized exchanges make it easy to get started with cryptocurrency trading by allowing users to convert their fiat currency, like dollars, directly into crypto. The vast majority of crypto trading takes place on centralized exchanges.
Some crypto enthusiasts object to centralized exchanges because they go against the decentralized ethos of cryptocurrency. Even worse in the eyes of some crypto users, the company or organization may require users to follow Know Your Customer (KYC) rules.
These require each user to divulge their identity, much as you would when you apply for a bank account, to combat money laundering and fraud. With centralized exchanges: hacking. With a CEX, the exchange holds the crypto traded on its platform—at least in the short term, while trades go through—raising the risk of hackers stealing assets.
To address this risk, centralized crypto exchanges have beefed up security over recent years. Among other strategies, they now store most customer assets offline and take out insurance policies to cover crypto losses in the case of hacking.
Decentralized crypto exchanges (DEX) distribute responsibility for facilitating and verifying crypto trades. Anyone willing to join a DEX network can certify transactions, much like the way cryptocurrency blockchains work. This may help increase accountability and transparency as well as ensure an exchange can keep running, regardless of the state of the company that created it.
The trouble is that decentralized exchanges are much less user-friendly, not only from an interface standpoint but also in terms of currency conversion. Decentralized exchanges, for instance, don’t always allow users to deposit dollars and exchange them for crypto. This means you either have to already own crypto or use a centralized exchange to get crypto that you then use on a DEX.
This means it may take longer for you to find someone looking to buy what you’re selling and, if liquidity is low, you may have to accept concessions on price to buy or sell low-volume crypto quickly.
Global Crypto Exchanges
There are nearly 600 cryptocurrency exchanges worldwide inviting investors to trade bitcoin, Ethereum, and other digital assets. But costs, quality, and safety vary widely. With an emphasis on regulatory compliance.
Crypto Exchange Fees
You pay two types of fees when you buy and sell crypto: trading fees and withdrawal fees.
Trading fees may be charged as a flat percentage of the amount of crypto you buy or sell, or an exchange may differentiate between orders that are makers and those that are takers, charging a different percentage accordingly.
On a basic level, makers are orders that add liquidity to an exchange, meaning they do not fulfill standing orders. Takers, meanwhile, remove liquidity from an exchange by completing orders that are waiting for a trade. Depending on the exchange, maker fees are usually slightly less than taker fees.
While you’re ideally picking an exchange with the lowest costs, dwelling too much on the ins and outs of maker and taker fees can be counterproductive. That’s because you can’t choose whether your order is processed as a maker or a taker. Instead, you’re better served considering overall fees and any discounts available for trading a certain amount each month or holding an exchange’s native cryptocurrency.
Many exchanges charge fees to withdraw coins from their platform. This can be an issue if you prefer to move your crypto to a secure third-party wallet or onto another exchange. Withdrawal fees typically vary by cryptocurrency.
If you anticipate moving your crypto off of an exchange, you should choose a platform that allows a certain amount of fee-free withdrawals, like Gemini.
Basic 10 Feature variables to assess the quality of each platform
- Trading. Key metrics included the number of cryptocurrencies available to trade, the number of fiat currencies accepted, the exchange’s overall liquidity, and trading fees.
- Advanced Trading. We looked at the availability of complex trading features like advanced order types and volume discounts for frequent trading.
- Margin Trading. An assessment of margin trading rates, if applicable.
- Platform Availability. While some of the best crypto exchanges are available everywhere, others have widely varying degrees of accessibility to different features by country and by U.S. state.
- Customer Service. Available types of customer support.
- Educational Resources. We evaluated the educational content offered by each platform.
- Crypto Rewards Credit Card. A few platforms offer crypto rewards credit cards.
- Security and Storage. Types of storage options, security, and insurance available, plus an assessment of any large-scale hacks of each exchange over its lifetime.
- Staking and Rewards. Some platforms allow users to stake selected cryptos and earn interest payments.
- Crypto Lending. Some crypto exchanges allow users to lend out their cryptocurrency.