In the last decade, the flourishing crypto space has welcomed a plethora of online exchanges, with each of them competing for your digital coins. However, for beginners, selecting the right crypto exchange for trading digital assets may be difficult, as they may not know what features to look out for. If you fall into this category, go through this guide to learn how to choose the right crypto exchange for trading. Choosing the right exchange platform is critical, as it determines your overall success with trading in the crypto space.
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What is a crypto exchange platform?
It is imperative to understand the meaning of a crypto exchange platform and how it works, especially if you are a newbie. So, what’s a crypto exchange platform?
In simple terms, a crypto exchange is a platform where you can exchange fiat money (issued by the government) for cryptocurrencies or any other digital asset. Usually, you would have to pay a specific fee for each trade you make with exchanges before the
Additionally, these exchange platforms specialize in the exchange of numerous cryptocurrencies, facilitating the buying, selling, and trading of different cryptocurrencies and tokens.
How do crypto exchanges work?
Generally, most crypto exchanges allow you to buy cryptocurrencies with fiat money and swap one crypto for another. Here is a list of the general services that most quality crypto exchanges are likely to offer you:
1. Direct selling of cryptocurrencies
Most crypto exchanges support the selling of cryptocurrencies to users. Essentially, this means that you can use fiat money to buy cryptocurrencies on an exchange.
Brokers on these platforms can depend on their own crypto assets. They purchase them at a lower price and resell them to other users at market price plus an extra fee.
2. Cryptocurrency trading
When it comes to crypto trading, the exchange won’t sell digital assets directly to its users. Rather, they function as the mediator between crypto buyers and sellers. In return, these platforms charge a specific fee per transaction.
Read more: How to trade crypto in 2024
3. Cryptocurrency storage
One of the major issues that crypto holders deliberate on is finding a way to store their cryptocurrencies safely and securely. This is because as a crypto holder, you must never misplace your private keys. If you misplace them, you may never be able to access your digital tokens. However, crypto exchanges have provided a more convenient solution to the problem of storage. Most reputable crypto exchanges now offer a wallet where you can store your tokens.
4. Cryptocurrency lending
In recent years, some blockchain-based exchanges have introduced the lending option on their platform. This service is similar to a regular bank loan service, in which you borrow money and pay it back with interest. When it comes to crypto lending, investors loan out their cryptocurrencies to borrowers on the platform in exchange for interest. These interest payments are called crypto dividends.
What are the types of cryptocurrency exchange platforms?
Here is a list of the most common types of crypto exchanges in existence:
1. Centralized exchanges
Centralized exchanges are the most popular type of crypto exchange platforms. In these platforms, a central authority or organization operates the exchange and supervises the day-to-day transactions that occur in it. Usually, users of this platform have to deposit their cryptocurrencies or fiat money and then trade it with any other user on the platform. The exchange generally charges its users a specific fee for each transaction.
2. Decentralized exchanges
These exchanges run on a decentralized blockchain network and are not managed by any central authority or organization. Hence, users of decentralized exchanges can trade cryptocurrencies directly and interact with each other without needing any central authority to serve as a mediator. In decentralized exchanges, users retain complete control of their digital assets and the transaction fees charged are generally lower than the fees charged by centralized exchanges.
3. Peer-to-peer exchanges
Peer-to-peer exchanges link buyers and sellers directly to each other, permitting them to haggle prices and terms of the trade. Generally, these platforms do not need a central authority or middleman to supervise the trade, which makes them more private and decentralized.
4. Crypto ATMs
Crypto ATMs are machines that permit users to purchase and sell cryptocurrencies with the use of cash or credit/debit cards. These machines are fast, convenient, and very easy to use, however, their fees can be very high.
5. Brokerage services
Brokerage services permit users to purchase and sell cryptocurrencies at a specific price. Hence, users of brokerages do not need to bother about market volatility or order books. Also, transactions executed here are usually processed very quickly.
Top 10 factors to consider when selecting the right crypto exchange for trading
Want to know how to choose the right crypto exchange for trading? Check out these 8 factors that determine the quality of a crypto exchange platform:
1. The Number of coins you can trade
When choosing the right crypto exchange for trading, you should look out for an exchange platform that supports the cryptocurrencies that you are looking to trade. This factor is of utmost importance since no exchange supports all kinds of cryptocurrencies. Think about if you would be interested in trading BTC or ETH, if you would, ensure that you use a platform that supports these tokens.
Also, you should research the kinds of investment and trading services available on the platform. As exchanges have become more complex in the last few years, their offerings now include products like future contracts, ETs, leveraged tokens, etc.
2. Security and safety
The crypto industry is still young compared to other industries and stocks in existence. Hence, the crypto market is not just volatile but also prone to defects. So far, one of the most common faults affecting most crypto exchanges has been hacking. Currently, there is still no exchange that is immune to security breaches and cyber-attacks. Therefore, you must be very careful while choosing an exchange so you will not entrust your digital assets to an exchange that is prone to hacks.
To assess the safety and security level of an exchange, check how seriously the platform pays attention to all its security protocols. Generally, good platforms offer two-factor authentication and powerful security measures to protect their users against scams, hacks, and any other kind of theft attempts. Some platforms may even take it a step further by supporting biometric login as well as other strict Know Your Customer (KYC) standards to guarantee the safety of users.
In all, it is paramount that you choose a platform that implements a wide range of security protocols to make them as safe as possible.
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3. Know If the platform supports fiat currency
If you plan to buy cryptocurrencies using a fiat currency, then you should find a platform that supports the purchase of digital assets with fiat currencies. Also, you should check the kind of fiat currencies accepted on the platform to be sure they support your location.
Unfortunately, some crypto exchange platforms don’t support fiat currency. Ensure that you avoid these kinds of platforms, as they don’t meet your needs as a prospective crypto trader.
4. Ensure you’re aware of charges
As stated earlier, crypto exchanges generally charge a fee for each transaction users execute. This is one of the ways they earn their money. So expect to be charged for trades you execute on any platform you choose.
As such, you should research and compare the fees charged by different crypto exchanges and settle for the fee that you are most comfortable paying. Know that any deposit, withdrawal, balance transfer, and trading you make will attract a fee, and check for the amount each of these transactions will attract.
It’s in your best interest to remember that fees are generally tied to your entire trading volume over the previous 30-day period. Hence, the higher the size of the trades you execute, the lower the fees you will be charged. Most reputed platforms generally charge transaction fees of about 0.2% or much lower.
5. Regulation compliance
Another important aspect you must consider when choosing a crypto exchange for trading is its regulatory compliance. You should find out whether the platform is licensed to operate in your geographical location. Since crypto exchanges are not as regulated as stock exchanges, they may not be licensed to operate in parts of the world. So you must be extra careful and do in-depth research to find out if an exchange has been properly audited or not. Generally, quality crypto exchanges will prove that they have been adequately audited.
6. Insurance policy
This is another aspect to consider when understanding how to choose the right crypto exchange for trading. You must assess the insurance policy of your prospective exchange, just as you assessed its safety protocols.
Insurance policies benefit you because they protect you and other users in the eventuality of a theft, hacking, scam or another type of unfortunate incident. So you can’t be 100% secure without an adequate insurance policy set in place. Fortunately, most crypto exchanges nowadays offer insurance policies that adequately cover a wide range of hacks and cybercrime cases.
Note that insurance will differ depending on the crypto exchange. Hence, you should carefully go through the information the platform provides about its insurance policy. Also, you must be fully aware of how much of your digital assets are protected in the eventuality of an attack.
Exciting read: 3 effective trading strategies for crypto traders in 2024
7. Ensure there’s sufficient liquidity
In simple terms, crypto liquidity is just the ease with which you can trade your crypto for fiat and vice versa, without this action having a significant impact on the worth of your asset. Generally, the faster you can sell off your digital asset as close to your original asking price as possible, the more liquid a crypto exchange is regarded to be.
So you should look out for an exchange that offers a healthy level of liquidity. The exchange should also permit users to complete transactions fast and cost-effectively.
One of the easiest and fastest ways to assess the liquidity of an exchange is to check its past 24-hour trading volume. As for assessing the speed of the exchange, you can check the reviews of users.
8. Rewards
Many crypto trading platforms today have recently introduced rewards programs. While these programs vary depending on the platform, their primary aim is to allow users to maximize the digital assets that they’re holding.
Some exchanges spice things up by rewarding their users for staking their tokens, while others offer incentives to users so that they continue to keep their digital assets on their platforms. In fact, most exchanges today offer cashback programs and crypto-based loans at reasonable rates.
When comparing rewards between different exchanges, try to consider the promised rate of return, frequency of payment of the promised interest you would be earning, as well as the eligible coins and prerequisites to recover your assets if you end up changing your mind.
9. Reputation and track record
Ensure that you research the reputation and track record of a crypto exchange before deciding to settle for it. Go through the exchange’s history of cyber breaches (if any), its user reviews, as well as community feedback. Make sure that you settle for exchanges that have a very solid reputation and a verified track record of dependable service.
10. Customer support
Reliable and prompt customer support is important, particularly when you confront problems or have questions about your crypto transactions. Hence, you need to if the crypto exchange provides customer support via multiple channels, such as email, live chat, or even phone numbers. Responsive customer support will definitely save you time and relieve you from worries during critical moments.
What is the best crypto trading platform?
Bitmama is easily the best choice for traders looking to enjoy a blend of speed and low transaction costs to take advantage of market opportunities. Bitmama completes swiftly and offers an elaborate P2P market that gives users full control over their trading activities.
Ultimately, learning does not stop even after understanding how to choose the right crypto exchange for trading. Your trading needs may evolve over time and you’d have to switch to a platform that accommodates these needs. Also, don’t hesitate to compare different platforms to find out the most suitable one for your goals. Most importantly, you should prioritize a platform that is licensed, secure, affordable, and supports the kind of cryptocurrencies you want to trade. With this guide, it is now easy for you to steer the crypto exchange landscape with full confidence and select the most suitable platform for yourself.
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