The First Step to Smart Crypto Investments Is Finding the Right Exchange
This guide will walk you through everything you need to know before deciding on an exchange to invest with. You’ll find out how exchanges work, what types of crypto exchanges exist, how they differ from each other, and what things you need to consider before deciding on an exchange. Read to the end to find our list of top exchanges and their reviews.
Already Familiar With Crypto Exchanges?
Jump straight to our comparisons to see how exchanges compare against each other.
What Are Crypto Exchanges?
Exchanges act as the middlemen between buyers and sellers. They operate for cryptocurrencies like Bitcoin, fiat currencies like USD, stocks, and commodities.
An exchange platform makes it convenient for you to trade and invest in cryptocurrencies because it matches you – the buyer – with a seller and accommodates the transaction. Unlike other exchanges, cryptocurrency exchanges are active 24/7.
How does this look in practice? When you sign up for one of the platforms, you’ll be able to start buying crypto with your home currency. For example, if you want to invest $500 in BTC (Bitcoin), you will put a request in on the platform, and the platform will match you with somebody who is selling their BTC. Then the exchange will happen. The amount of BTC you’ll receive will depend on the exchange rate at that moment. You’ll receive BTC, and the seller will receive your USD. And when you’re ready to sell your BTC, it will work exactly the same but in the opposite direction—matching you with a buyer. Most exchanges facilitate these transactions instantly; however, for bigger transactions, there might be a delay if there isn’t enough movement on the platform.
How Are Bitcoin Exchange Rates Set?
Cryptocurrency exchange rates are dictated by demand and supply. So, if there are a lot of orders to buy Ethereum, but there aren’t as many orders to sell, the price will inflate. This is because there’s a lot of demand. And vice versa, if people are selling Ethereum like crazy, but there’s nobody on the other side to buy—the price of Ethereum will decrease.
How Do Crypto Exchanges Make Money?
The business model of all exchanges relies on commissions. Every transaction will be commissioned one way or another. Some platforms will charge you a percentage of the transaction, while others charge you a flat-rate fee. Exchange platforms can also markup or down the exchange rates to increase the spread (the difference between the selling and buying price). Then they can use a different exchange to offset the transaction and keep the difference as profit.
Every exchange needs to have enough active traders, so the platform runs smoothly without delays between the transactions. This is referred to as liquidity. In other words, the more money is traded through the platform, the bigger its liquidity. A platform with high liquidity can accommodate a large number of investors that trade big amounts of money.
What Are The Different Types of Crypto Exchange Platforms?
Learn about the different types of exchanges before choosing the right one for you. Exchanges can be categorized by types depending on the way they operate. The type of exchange will dictate how secure, reliable, and convenient it is.
Centralized Cryptocurrency Exchanges
Centralized exchanges are the most popular and might come as a surprise due to the decentralized nature of cryptocurrency. A centralized crypto exchange is an exchange that runs on centralized software and has a centralized operator responsible for its functioning, security, etc. The biggest advantage of centralized exchanges is liquidity. The downside is that centralized exchanges are more vulnerable to hacker attacks. And since all coins are stored in the exchange’s wallet, you have no real control over them until you cash out.
Decentralized Crypto Exchanges
Decentralized exchanges don’t have a central operator. Traders are in complete control of their funds. The platform doesn’t store any of the coins. It simply connects a buyer with a seller. The transactions happen outside of the platform and are protected by the blockchain. This is an advantage and a disadvantage. Using a decentralized exchange makes you responsible for your own security. This is less convenient as you have to take care of your wallet, keep your private keys safe, and do your due diligence before transferring funds. A disadvantage of decentralized exchanges is low liquidity making them unsuitable for high volume investments.
Hybrid Crypto Exchanges
Hybrids are a combination of centralized and decentralized exchanges. A hybrid exchange will take the usability of a centralized exchange and the security of a decentralized exchange. This combination provides convenience and security. The liquidity of hybrid exchanges is not as large as a centralized exchange’s liquidity, but at the same time, it’s big enough for most investors.
Broker platforms will allow you to buy cryptocurrencies directly from them for a fee. They’re usually centralized and fully regulated by the countries they operate in. Crypto brokers are the most convenient and will make you feel better protected due to the regulations. For example, if the exchange falls victim to hackers, you might be compensated.
Consider These Before Deciding on an Exchange
Now that you understand the different types of cryptocurrency exchanges, you can start deciding on the important factors for you. Exchanges vary in the level of security, liquidity, control over your funds, and privacy.
Exchange Security and Reputation
Are your coins safe? Has the platform been hacked before? How did they deal with the hack?
If you’re planning on investing large amounts of money, look for a platform that’s able to handle your transactions.
How does the platform compare against competitors? Do they charge a percentage or a flat rate fee? Which will be more economical for your investments?
How much information does the platform collect, store, and share? Are your transactions anonymous? The most secure and private methods of buying cryptocurrency usually need you to jump through a few extra hoops.
Some exchanges have limited options. If you want to build a large portfolio full of alternative coins, then look for exchanges that offer the most coin options.
Which Exchanges Should You Consider?
Below we have summarized our top exchange platforms. You can read the in-depth review of each one by clicking the links below each summary.
Coinbase is the most popular platform, and it’s been around the longest. It’s centralized, regulated, user-friendly, and has a good choice of coins available. Coinbase started as a broker but now offers more services like an exchange platform (Coinbase Pro), wallets, and even merchant options. Coinbase has a strong reputation, especially among beginner crypto traders.
Another popular platform that boasts a number of interesting crypto features is Crypto.com. You can buy, trade, save, and earn interest on your crypto with Crypto.com. You can also get a debit or a credit card. Crypto.com works with the leading security expert for cryptocurrencies, Ledger, and you can be sure that they take your security seriously.
If you’re looking for an exchange with the biggest selection of coins, Binance boasts over 180 cryptocurrencies. It’s also extremely user friendly and convenient. You can use fiat currencies to buy crypto through Binance, and you have access to 24/7 customer support.
Bitfinex is the perfect platform for advanced traders and investors. If you’re looking for advanced features like a customizable GUI, an extensive catalog of trading pairs, API access, and different order types—Bitfinex will impress you. The biggest downside to Bitfinex is that it isn’t available to clients from the USA due to historical banking issues.
Interested in a decentralized cryptocurrency exchange? Uniswap runs on the Ethereum blockchain. You can exchange coins on the platform, and you can earn by participating in the pool. The biggest advantage of decentralized exchange platforms is that you get to keep your privacy, and you have full control of your cryptocurrency.
Similar to Coinbase, CEX.io offers a brokerage and an exchange service. With CEX.io, you can also earn coins by either holding your crypto in your CEX.io account for a set period of time or by inviting people through the affiliate program.
See How Different Exchanges Compare
Use our extensive comparison articles to decide between exchanges and how they rank against each other in terms of fees, security, usability, and much more.
Want More Reviews?
View our exhaustive list of cryptocurrency exchange reviews. Each exchange review features its overview and history, unique functions, downsides, and a rating.