Cryptocurrencies are indeed the talk of the town.
It seems as if everyone is dying to get their hands on the latest and hottest cryptocurrency to hit the market. There is also a massive rush from old industries to be ahead of the curve and join the blockchain revolution.
While one may think that choosing the coins which to invest in may be one of the most important characteristics for your portfolio decision, there is a much more important decision that needs to be taken.
That is the choice of which cryptocurrency exchange you will be using to buy these coins. This is because the exchange or broker can impact spreads, profits, speed and of course, security.
In this post, we will take a look at the most important factors that you need to consider when choosing the best exchange or broker.
1. Transparency & Track Record
This is a key one.
When you know everything about an exchange, then there is very little that can surprise you. For example, it is essential to know where he exchange is operating from and who is at the helm. It is equally important to know about the terms and conditions.
While these are all well and good in the present, it is also essential for anyone in this business to have some sort of a track record.
Yes, it is a new industry and some of the exchanges and brokers are extremely new, but that does not mean you can’t get a history on the founders and what other businesses they have been involved in.
What is important to note is that the cryptocurrency community is very vocal. They are usually the first who will take to a forum or chat group to let others know of a good or bad experience.
That is why it helps to always take a look at forums such as Reddit and bitcointalk.org. There are sometimes subreddits that are dedicated to the exchange or broker. You can observe response times as well as general customer service.
This can be a sticky one.
Regulations in cryptocurrency markets are still a grey area and there is no standard benchmark of regulation. This all comes down to the fact that some countries don’t recognise them as “securities” when some do.
Hence, some of the largest cryptocurrency exchanges such as Binance are not regulated by a government entity. They have extensive security policies in place but have no backstop in the place of a massive hack. This can also be said for an exchange like Bitfinex.
If you are looking for regulation, then your best bet would be to take a look at the cryptocurrency CFD brokers that operate in particular jurisdictions. Given that a CFD is a financial product it has to be regulated by an entity.
One such example is IQ option. They are based in Europe and offer cryptocurrency CFDs. As such, they must conform to the rules that are laid out by the European Union MIFID regulations. If you wanted more information there are a number of IQ option reviews that cover the topic.
When a broker is regulated, you are covered up to a certain amount for any losses that could be incurred at said broker. Brokers are meant to keep a certain amount strictly monitored in a separate account.
3. Assets to Trade
Obviously it is really important that the exchange or broker has the asset that you want to buy / sell.
Not only is it great if they have your asset, but also if they have a range of assets that you can trade. For example, some of the larger cryptocurrency exchanges such as Coinbase only have 4 assets that you can buy. This is no doubt limiting.
There are others, on the other hand, such as Cryptopia that have over 700 cryptocurrencies that are currently listed on the exchange. However, cryptopia has quite low volume in some of these assets.
Hence, it is important to find an exchange that has asset coverage but also has the volume in those assets. An exchange such as Bittrex or Poloniex are no doubt great assets exchanges in this respect.
4. Platform Functionality
When trading, nothing is more frustrating than a buggy platform.
A platform that is suffering from breakdowns and closures due to overloading is one that will drive customers away. This is exactly something that we saw with the Kraken exchange over the past few months.
Hence, you need to make sure that the exchange is well known to have an efficient platform and trading engine. Trades should be entered and exited seamlessly. The trading platform should also be intuitive and easy to read.
Moreover, for the more sophisticated traders, there should be a charts and indicators. This will help the trader assuming that they wanted to run technical analysis on their cryptocurrency pairs.
Save the best for last!
Exchange security is no doubt on the mind of every trader and exchange operator. Cryptocurrency exchanges are prime targets for hackers as they try to maneuver in and grab the untraceable coins.
This has also happened with increasing regularotary over the years. From the hack of Mt Gox in 2014 that saw millions in Bitcoin extricated, to the recent hacks of Coincheck and Bitgrail.
Exchanges have to take the utmost care and practice cybersecurity 101. This meanst that they should operate an intricate process of mulitsignature wallets as well as use dedicated cold storage for the majority of their cryptocurrency.
You can usually read about the security measures that an exchange will take as it is in their terms and conditions. They will list the procedures that they embark on when managing accounts.
It is also helpful to know whether the exchange has suffered any sorts of hacks in the past. There are some exchanges that have stood the test of time and remained resilient.
If the exchange or broker that you are using ticks off all of these boxes, then you can comfortably create an account and start using them.
Now, the onus is on you to make sure that you buy the right coins, that you operate personal security when interacting with the exchange and that you do not leave large amounts of cryptocurrency in an exchange.
Keep calm and Hodl!