What Is a Crypto Exchange?

Similar to stock or forex exchanges, a cryptocurrency exchange is an investment platform that provides liquidity for you to buy and sell cryptocurrencies, including Bitcoin and crypto products from other makers. You can trade your cryptocurrency for a traditional currency like the U.S. dollar or Euro (called fiat currencies) or for other altcoins.

Investors using a crypto exchange website can place buy and sell orders in two ways: as market or limit orders. In a market order, you sell the crypto at market price. In contrast, a limit order allows you to sell crypto at an exchange rate that you specify, providing other users on the platform with liquidity. Your order will only go through if the market price reaches the price you set.

Factors to Consider When Choosing a Bitcoin Exchange

When we created our list of the best crypto exchanges, our review process considered several aspects, including the following:

Security

As an investor, you should always make keeping your crypto assets safe a top priority. The best cryptocurrency exchanges have a variety of security measures in place to protect your crypto and sensitive data, such as two-factor authentication and asset insurance.

It would help if you also looked into how the exchange stores users’ crypto. Some cryptocurrency exchanges use hot wallets, which stay connected to the Internet at all times and thus pose security hazards. In contrast, “cold storage” hardware devices lack a constant connection to the web, preventing would-be hackers from accessing your crypto.

That said, even exchanges with hot wallets can keep your crypto assets relatively safe as long as they implement other security measures.

Fees

Each cryptocurrency exchange has its own fee structure. The types of fees you may encounter include:

• Trading fees/transaction fees
• Deposit fees
• Withdrawal fees
• Bank account transfer fees
• Currency conversion fees

As the most common type of fee, trading fees usually give the crypto exchange a small percentage of your transaction. Because fees for the same trade can vary greatly from one exchange to another, you should compare fees before making your decision.

Ease of Use

The crypto world already comes with enough complexities, so you don’t want your cryptocurrency exchange platform to add confusion with a non-intuitive user experience.

Because the platform will be the main hub for your crypto trading experience, you want to make sure you choose one that you can easily navigate, with straightforward buy-and-sell order placement and practical trading tools.

Before committing to a crypto exchange, read user reviews of different exchanges to learn what other cryptocurrency traders liked and didn’t like about their platforms.

Number of Crypto Coins

Every crypto exchange will allow you to buy Bitcoin, but what if you want to trade more niche altcoins, like Stellar Lumen or IOTA? Investing in lesser-known altcoins can help you make money without having to battle it out with millions of other buyers.

Especially if you’re an investor looking to diversify your portfolio, you should pick a cryptocurrency exchange that supports a wide variety of crypto products.

Payment Methods

When choosing the best cryptocurrency exchange for your needs, make sure to think about how you're going to deposit and withdraw your money.

Some crypto exchanges only allow certain payment types, which can make the exchange inconvenient to use. One crypto exchange may permit you to trade with fiat currencies, while another might strictly accept only another crypto as payment.

A crypto exchange may give you the option to purchase cryptocurrencies using a credit card, but keep in mind that you’ll usually have to undergo thorough identity verification each time, pay higher fees, and run a higher risk of fraud.

Some cryptocurrency exchanges may also let you conduct a wire transfer through your bank account, but just know that this process will take much longer.

Regulation

Depending on where a cryptocurrency exchange operates, different regulatory bodies will oversee it. The standards these regulators set will keep users safe from scams and other shady activity. If something happens to you while using a regulated crypto exchange, you have legal recourse you can use to settle the issue.

For example, in the United States, the Securities and Exchange Commission (SEC) and Financial Crimes Enforcement Network (FinCEN) regulate crypto exchanges. The Commodity Futures Trading Commission (CFTC) may also oversee the exchange, especially if the platform supports non-crypto assets as well.

Other reputable regulators that oversee crypto exchanges around the world include the U.K.’s Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySec), and the Abu Dhabi Global Market (ADGM).

If the crypto exchange you want to use has its headquarters in an island nation like Malta or the Seychelles, proceed with caution, as these countries lack substantial cryptocurrency regulations.