How to Choose a Crypto Exchange: Key Factors

How to Choose a Crypto Exchange: Key Factors

The cryptocurrency market already offers thousands of digital currencies, and new ones are being developed on a regular basis. As a result, many people ask questions like, “how can I trade these assets?” and “which cryptocurrency exchange should I use to trade them?” To answer these questions, you must first understand what an exchange is and how to identify a trustworthy one.

Exchanges act as brokers, allowing you to purchase and sell cryptocurrencies such as Bitcoin, Ethereum, and Tether. The ideal crypto exchange should allow you to easily trade the currencies you want while charging low fees and providing high security.

Selecting the best cryptocurrency exchange to trade your coins on can be difficult. The following factors will assist a beginner or expert in selecting the right crypto exchange:

Exercise Caution

First and foremost, keep in mind that scams and frauds are common in finance. This is very important when it comes to digital currency. Even the top crypto exchanges in the market today are subject to malicious attacks and not 100% safe.  The pioneering cryptocurrency exchange Mt. Gox went bankrupt, and other well-known ones have occasionally been breached.

The first step to ensuring a crypto exchange’s reliability is to find the physical address affiliated with the exchange. If you can’t find an address, keeping away from the exchange is best. 

You won’t fully understand the frequently troublesome legal implications of your investments if you don’t know where the exchange is headquartered.  Every country has regulations and tax systems that govern crypto exchanges. Furthermore, having a physical site for an exchange makes it much easier to resolve issues with the exchange. This is useful if you need to contact a regulator because your account has been compromised.

Do Your Research

Reputation is essential in the world of cryptocurrency and exchanges. Creating an account on a new cryptocurrency exchange necessitates a substantial amount of personal information.  As a result, it is critical to conduct extensive research first. Always ask yourself, “What do other people who use the exchange say about it?” “Has there ever been an issue with its security?” “If so, has the exchange resolved those issues? “

Investigate thoroughly and look for any unfavourable information that the developer of the exchange does not want clients to see.

Find Out How Many Coins You Can Trade.

Due to the exponential growth of the cryptocurrency market, there are currently close to twenty thousand distinct cryptocurrencies. Make sure that the exchange you select has access to the digital assets you wish to trade. 

Leading crypto exchanges like Coinbase and Kraken are good places to begin. They have diverse currencies and tokens suitable for novice and experienced traders. 

Verify That There Is Sufficient Liquidity

It is best to go for an exchange with liquidity. Liquidity is the measure of how easily you can convert your fiat currency into tokens or vice versa without incurring significant costs. This is especially important in the volatile world of digital assets. You’ll want to ensure that your buy or sell orders will be filled quickly, especially if they are near your target price.

Looking at the number of trades made on an exchange is a straightforward method to determine its success. The 24-hour trade volume for hundreds of exchanges is available on crypto information websites like CoinMarketCap. Cryptocurrency exchanges Coinbase and Kraken have experienced the biggest trading activity in recent months.

Check for Adequate Security.

It is a well-known truth that all crypto exchanges can be hacked. Even a big exchange like Mt. Gox was compromised in 2014. The hackers got away with the equivalent of $460 million from the platform. And there are numerous such instances of major exchanges’ security being compromised. As a result, you must pick a crypto exchange with sufficient security.

The most fundamental form of security used by the majority of platforms is two-factor authentication. But you should also keep an eye out for any additional precautions. For instance, as additional security measures, some exchanges incorporate biometric login such as facial and fingerprint authentication. 

Learn About Fees

You will be charged a fee each time you deposit, trade, or withdraw money from a cryptocurrency exchange. These fees range from 0% and 5% on each trade, depending on your payment method and the nature of the transaction. Therefore, choosing exchanges with lower transaction fees is advised.

Fee tiers are usually calculated determined on your total trading volume over the course of a 30-day trading period. Additionally, you’ll pay lower fees on larger trades. For instance, if you made 15 trades totalling $1,000 in tokens on Bitstamp throughout a month, your fees would amount to $75. However, your fee would be $50 if you made a single trade of $20,000.

Here is an indication of fees at major exchanges:

FTX US—0% to 0.4%

Coinbase—0.5% to 4.5%; varies by type of transaction

Kraken—0.9% to 2 %; varies by type of transaction—0% to 2.99%; varies by type of transaction

BlockFi—0%; spread of 1%

Binance.US—0.1% to 5%; depending on the payment method

Bitstamp—0% to 0.5%ch trade. to 0.4%; varies by type of transaction

Check the Insurance Coverage.

The first goal of a crypto exchange is to strengthen its digital security. This is to prevent hackers from stealing their customers’ funds. However, reliable exchanges will still have a good insurance policy in case something happens. 

Numerous exchanges now have commercial crime insurance that covers theft, destruction, robbery, or cyber fraud. However, insurance varies greatly between exchanges, so you must verify what exactly they cover. You can get this information in the user agreement you receive after signing up and often in the FAQ sections of exchange websites.

Consider Taxes

Just like stock and bond trading, the profits from cryptocurrency trading are subject to taxation. Your cryptocurrency trading profits are constantly subject to IRS scrutiny. Unfortunately, informing the IRS of this information is far more challenging.

Providers of digital assets will provide you with documents such as Forms K-1, 1099-MISC, or IRS 8949 Schedule D, for your tax report. These are comparable to the Form 1099s your stockbroker sends out, and they reflect your gains and losses for the year. Unfortunately, not all crypto exchanges (particularly those in unknown regions) send out these documents. And even if you do receive the forms, they may not show up until late after the April tax deadline. If that’s the case, be ready to request an extension.

If tax reporting is crucial to you when searching for a new exchange, check their website or contact customer service to find out if and when they supply tax forms.


A digital currency or cryptocurrency exchange is the most common and user-friendly platform for trading and staking digital assets. There are over 380 already existing crypto exchanges worldwide, so it isn’t easy to select the best one. However, when deciding whether or not to use an exchange, consider the fees, currencies supported, withdrawal options, and level of security.

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