Doing your own homework (“DYOR”) first before trading on a crypto exchange is important.
Don’t just pick an exchange just because it’s the first one you see listed on Google or the most talked about on Reddit.
There are a lot of cryptocurrency exchanges you can choose from these days but how do you know they don’t suck?
Unlike the retail FX broker industry, which has grown up, cryptocurrency exchanges are babies. This means there are some exchanges that know what they are doing and some that don’t.
Given that it’s your money that’s at the risk, you should know how to properly choose which crypto exchanges to trade on.
How to Pick the Best Crypto Exchange
With hundreds of crypto exchanges to choose from and more launching all the time, what is the best cryptocurrency exchange (CEX)?
Unfortunately, there is no “best” exchange. Choosing the “best” exchange is like trying to choose the “best” dish at a buffet….it depends on the person!
Choosing a Crypto Exchange
Each person usually has different criteria that need to be met, so the real question should be:
What is the best cryptocurrency exchange for MY needs?
While the trading process is similar between CEX’s, each company has different features and services they may offer to consider.
That means a strong effort to find an exchange that fits your specific needs is likely one of the most important things you can do at the beginning of your trading journey.
Here’s a checklist of the significant things to consider when choosing a crypto exchange:
Reputation
Security
Geographical Restrictions
Accepts Fiat Currency
Crypto Availability
Usability
Deposit and Withdrawal Restrictions
Fees
Loyalty Programs or Discounts
What is its reputation?
What’s the reputation of the crypto exchange? Hopefully, just like Taylor Swift, it’s got a big reputation. 🎵
How long has the crypto exchange been operating? Are they trustworthy?
Trust is normally built up through a working relationship over time, but of course, identifying trustworthy companies can be done beforehand.
This is preferably done through referrals from friends or family that you may know already using the crypto exchange.
Google crypto scams
If friends and family can’t help, search on Google for independent online reviews from other individual users to find out all about their experiences with the platform. Here are other things to type in Google:
Google the company’s name + “review” and read the reviews.
Google the company’s name + “scam” and look at the search results.
Google the company’s name + “withdraw” and look out for complaints about not being able to withdraw funds
Google where the company is registered and where its headquarters are located. Make sure to confirm it’s a real address.
You can also read well-known industry websites and spend time on forums like BitcoinTalk or Reddit.
Look to answer the following questions:
Does the exchange have a reputation as a secure and reliable platform?
Where does it excel and where does it fall short?
Would they recommend the crypto exchange to friends and family? Their grandma? Or would they only recommend them to their worst enemies?
While online forums and social media platforms can also be a source of information, just remember to always take those comments with a grain of salt.
Grain of salt
Crypto influencers often dominate the narrative of a company and are sometimes paid to positively promote a crypto exchange.
While on the other end of the spectrum, there are folks out there who may be overly negative, possibly intentionally spreading misinformation.
The truth is usually somewhere in the middle.
Whichever route you take to get reputation information, always remember to never just take someone’s word at face value…do your own research!!
You’re the one who is ultimately responsible for your capital and to who you give custody of your crypto keys.
How secure is it?
As with anything related to money, security should be at the top of the list when it comes to choosing a crypto exchange.
Crytpo Exchange Security
There have been many tragic examples of exchanges being hacked and customer funds disappearing. It’s important to know what security measures a crypto exchange has in place to keep your funds safe.
You don’t want all your funds, whether stored as fiat or crypto, to be lost in an instant!
Of course, no amount of research can eliminate exchange risk completely, but making the effort will significantly reduce the odds of you suffering a loss.
Security is a wide-ranging topic that cannot be fully covered in this beginner’s guide, but here’s a list of the questions you should be asking when doing your research on a crypto exchange:
Has the exchange ever been hacked for customer data or customer funds?
Has it ever experienced considerable downtime or degraded service?
Is the company regulated? Has it ever been shut down by regulators?
How does the company custody customer funds? Are those funds insured and if so, what are they insured from?
Does the platform offer 2FA (Two-Factor Authentication) when logging into your account, before placing trades, or before sending crypto off exchange?
Does it have any geographical restrictions?
Due to regulatory requirements, some exchanges allow only individuals from certain countries to be able to open an account and trade.
For example, some crypto exchanges may not allow U.S. citizens.
Make sure you choose an exchange where citizens or residents of your country are not restricted.
Crypto Gographical Restrcition
Some exchanges may even have separate websites specific to each country they serve.
Does it allow you to trade crypto with fiat?
You’ll need to consider the type of transactions you want to make. Crypto exchanges offer:
Fiat-to-crypto trading
Crypto-to-crypto trading
Both fiat-to-crypto and crypto-to-crypto trading
If you want to buy crypto with your home currency, you’ll need to check which fiat currencies the crypto exchange accepts for deposit.
For example, if you want to buy BTC with USD, you’ll need to find a crypto exchange that allows you to buy cryptocurrencies with U.S. dollars.
And if you want to exchange your BTC for another cryptocurrency, like ETH, you’ll need a trading platform that offers crypto-to-crypto trades.
Which types of crypto are available to trade?
Being a noob, it’s likely that you’ll be checking out bitcoin (BTC) or ether (ETH) as your first foray into the crypto trading scene.
But the world of crypto is big and growing every day, and maybe you may have found the next crypto gem (or gems) to start building your crypto portfolio.
Because of security and different regulatory requirements, every exchange uses a different process for adding a crypto asset to their trading pool.
That means you’ll find a wide range of token availability between exchanges, so be sure to check the available assets in advance before signing up.
If they don’t have what you want to trade, everything else doesn’t really matter, right?
Also, if you have future plans of taking your coins and tokens off of a centralized exchange(CEX) into your own custody, it’s important to determine whether or not the exchange has made it available is a native asset or a “wrapped version”.
Wrapped versions of a coin or token are usually not compatible with its native blockchain.
Is their trading platform easy to use?
If you’re a crypto noob, learning how to buy and sell crypto can be confusing.
Crypto Exchange with Poor Usability
Usability or “user-friendliness” is a very important element to consider for new traders as a poor user experience could lead to mistakes or enough frustration to quit trading altogether.
As a crypto beginner, look for a crypto exchange that offers a simple user interface (UI) that’s easy to understand from the start.
You’ll find that most of the more well-known crypto exchanges have simple visual layouts for both desktop and mobile apps, and typically keep the functionality limited.
This is great for beginners as crypto is normally a relatively volatile asset class, so you’ll want to avoid active trading and/or complex order structures in the beginning.
Also, be on the lookout for exchanges with a reputation for easy-to-use support features, just in case you do need help navigating the platform your first few times.
As you gain experience and skills, you may want additional features like advanced order types, candlestick charts, and the ability to trade with leverage using margin.
So don’t totally rule out platforms with those capabilities, but just don’t give’em as much weight and focus on simplicity when you’re first starting out.
You can explore trading platforms from other exchanges as you can gain more trading experience.
How is their customer support?
If you have a problem with an individual transaction or with your account, will you be able to contact the crypto exchange’s customer support?
And will they be able to resolve your issue in a prompt manner?
Locked out of crypto exchange account
Evaluating a crypto exchange’s customer service allows you to gauge just how much the company values its customers and how well funded they are.
Since excellent customer service does not come cheap, if you experience it, it’s a strong indicator that the exchange is a reputable company.
Here are some things to look for:
What customer support channels are available? Phone? Email? Live chat?
Is customer support available 24/7 or only during specific hours?
Is there an online support portal where you can submit a support ticket?
Does the exchange provide a support section on their website that offer answers to frequently asked questions?
Before opening an account with any crypto exchange, I strongly recommend that you try and send a support question first.
Then ask yourself the following questions:
How fast was the response?
Did an actual person reply? Or was it an automated reply?
Were they able to answer your question to your satisfaction?
You want a prompt response by a competent human.
What are their deposit and withdrawal methods?
What deposit and withdrawal methods are available on the exchange?
Examples of deposit methods or “funding methods” include:
Bank transfer
Wire transfer
A debit card or credit card
PayPal, Neteller, Skrill, and other online payment services
Cryptocurrency transfer
Make sure your exchange has deposit and withdrawal methods that YOU want to use.
The more deposit methods that an exchange has, the more convenient it will generally fund your account.
While having more options provides you with more flexibility in funding your account, be sure to keep in mind the advantages and disadvantages of each deposit and withdrawal method.
Some methods are faster processing times but have higher fees like using a credit card. While others are slower but have much lower fees like using a bank transfer.
What are their deposit and withdrawal processing times?
Don’t forget to check the processing times with different deposit and withdrawal methods.
How long does it take for your deposit to be completed?
You don’t want to miss out on a trading opportunity because your funds took too long to arrive to be deposited into your crypto exchange account.
How long does it take for your withdrawal requests to be processed?
Be sure to check average withdrawal processing times before you open an account. Waiting weeks for a withdrawal to arrive in your bank account or self-custodial crypto wallet is not fun.
There is no point in buying and selling crypto and ending with gains if it takes forever to withdraw the gains or you can’t withdraw them at all.
Are there any deposit or withdrawal limits?
Are there any limits on the amount you can deposit into your account?
These limits can be applied to each transaction or time-based, like daily or weekly. For example, using a credit card will have lower daily or weekly limits versus using bank or wire transfers.
Be sure to check whether there are any limits on how much you can deposit into your account.
Are there any limits on the amount you can withdraw from your account?
Some exchanges have withdrawal limits that restrict how much you can withdraw at once. This can be frustrating if you want to withdraw a large amount because you’ll have to break that amount into smaller amounts and withdraw them over several days.
Be sure to check whether there are any limits on how much you can withdraw from your account.
What are the fees?
Crypto exchanges are lucrative businesses. The largest ones are basically money machines.
Crypto Exchangs are Money Machines
How do crypto exchanges make money? By charging fees.
Different exchanges charge different fees in different ways.
Before you buy or sell cryptocurrency on any exchange, you’ll need to be aware of any fees that apply.
How much will it really cost you to buy and sell crypto with the crypto exchange?
Are there transaction fees? How do they work? Is there a deposit fee? A withdrawal fee?
Fees vary between crypto exchanges and may include:
Deposit fees. While most exchanges don’t charge any fees when you deposit funds into your account, there are still some that do. These fees can vary depending on the deposit method you choose and the currency you transfer.
Transaction fees. Transaction fees are typically calculated as a fixed percentage of each transaction amount. Some exchanges charge a flat fee for all transactions, while others have different “maker” and “taker” fees.
Withdrawal fees. If you want to withdraw funds from your exchange wallet, you might be charged a withdrawal fee. Withdrawing in fiat currency can either have a flat fee or a percentage-based fee while withdrawing in crypto will usually be a flat fee plus a network fee.
Also, some blockchains have higher network/gas fees than others, which should also be considered by more active users.
For beginners looking to buy-and-hold or build a crypto portfolio slowly, fees aren’t as big of a deal, but it’s still something to think about as it can still affect your overall profitability.
Fees can vary significantly depending on the exchange you use. So before opening an account, make sure you understand deposit, transaction, and withdrawal fees.
Are there any loyalty programs or trading volume discounts offered?
Are there ways for you to qualify for lower trading fees?
For example, there are crypto exchanges that have their own native cryptocurrency that can be used to lower trading fees.
Is there a tiered fee structure that rewards traders who trade frequently?
Trading fees are usually determined by how much and how often you trade. If you trade frequently, the fee may decrease if you reach thresholds for specific trading volume amounts.
Some crypto exchange charges fees that are calculated based on “pricing tiers” These pricing tiers are based on your total trading volume over a certain time period (like the past 30 days). The higher the pricing tier you’re in, the lower your trading fees.
For example, if you trade an average of $10,000 or more each month, you may pay lower trading fees.
