10 Things to Consider Before Selecting a Cryptocurrency Exchange
The internet is full of cryptocurrency exchanges, and many more could be coming in the future. But which type of cryptocurrency exchange would be the best for you? Would it be a centralized cryptocurrency exchange (CEX)? Do you think a decentralized cryptocurrency exchange (DEX) would be the best for you? Or, do you think a hybrid cryptocurrency exchange (HEX) would do a good saving and trading job for you?
More importantly, even if you select a CEX, a DEX, or a HEX, which one among the many cryptocurrency exchanges under each type (CEX, DEX, and HEX) would be the best for you to choose and use, and why? What would you consider before selecting a cryptocurrency exchange? Or, would you just select anyone?
If you select a cryptocurrency exchange without considering some important things, you could be taking a big risk that would make you eventually lose your cryptocurrency investment. It would be better—especially if you are inexperienced or a first-timer in cryptocurrency investing—to carry out some research on cryptocurrency exchanges before selecting a cryptocurrency exchange.
There are many cryptocurrency exchanges, and each cryptocurrency exchange has its own advantages and disadvantages that investors should consider before selecting one, or more of them—in case there is any interest in diversifying an investment portfolio.
This article provides information about some characteristics of cryptocurrency exchanges you have to consider in order to be in the best position to select a cryptocurrency exchange that would serve you well. The following are 10 important things you should consider before selecting a cryptocurrency exchange:
1. The level of security
Because cryptocurrency exchanges or platforms are always under constant surveillance and attacks from hackers and fraudsters, security is a major issue in the cryptocurrency industry.
Therefore, make sure the cryptocurrency exchange of your interest is registered under, at least, one government and has a high level of security which you can conduct thorough research for before making a decision.
To be in the best position to choose a legitimate and secure cryptocurrency exchange, it may be important to search for the cryptocurrency exchange’s online reviews on sites like Reddit, or search for related news articles on reputable sites Forbes.
When evaluating a cryptocurrency exchange’s level of security, some other security features you may look for should include one, two, or all of the following:
- The presence of cold storage method for storing most of the cryptocurrencies on the cryptocurrency exchange. It’s advisable to select a cryptocurrency exchange that can store your funds offline via cold storage method, in order to reduce the risk of online hacking.
- The presence of two-factor authentication (2FA). It’s advisable to select a cryptocurrency exchange that has a two-factor authentication method that can tighten up the level of security on your account by requesting for your identity to be confirmed using a combination of two different methods (password, email, phone, etc.), instead of only one.
- The presence and proof of a cryptocurrency reserve. It’s advisable to select a cryptocurrency exchange that conducts audits and verifies that the total amount of cryptocurrencies in its possession is at least equal to the sum total of the cryptocurrencies that are spread across all customers’ balances under its watch.
2. The extent of transaction limits
Many cryptocurrency exchanges have daily deposit and withdrawal limits. If you’re the type of investor who likes making a lot of deposits and withdrawals each day, then it’s advisable to look at the transaction limits placed on the cryptocurrency exchange of your interest. Although the restrictions placed on the number of transactions may not be an issue for you, you still have to keep transaction limits in mind when choosing a cryptocurrency exchange, especially if you have great financial goals to achieve.
3. The types of trading options
If you’re an advanced or very active trader, then trading options would likely be very important to your financial goals. Depending on your degree of risk tolerance, it’s advisable to find out whether the cryptocurrency exchange of your interest would allow you to access certain order types or margin trading that can make some types of investment goals more attainable. However, before you get involved in such trading activities, try to understand the risks involved so that nothing takes you by surprise in case of any unfortunate outcome.
4. The payment method(s)
Different cryptocurrency exchanges have different payment platforms or methods which assign their respective fees for transfers regarding cryptocurrencies. Some exchanges require investors or traders to use PayPal, bank transfer deposit, or credit and debit cards, or a combination of payment methods. It is advisable to consider the payment methods accepted by a cryptocurrency exchange and take note of the one(s) that would be convenient and easier for you to pay through.
5. The degree of liquidity
Any cryptocurrency exchange that doesn’t have a sufficient or high level of liquidity would make it difficult for many traders or investors to achieve their financial or investment goals because the speed of transactions, especially withdrawals, may be slow or compromised. Therefore, depending on your financial goals—which might likely be the same as that of many other investors—it’s advisable to select a cryptocurrency exchange that offers sufficient or high liquidity and trading volume which ensure fast and easy transactions.
6. The service fees
In order to make money and stay in the cryptocurrency exchange business, cryptocurrency exchanges usually charge their respective customers (traders or investors) certain fees for using their services; they do so by taking a certain (usually small) percentage of customers’ trade. Most exchanges charge a percentage that is lesser than 1% of the amount traded. No matter what the percentage is, it’s advisable to consider the service fee and services offered before selecting a cryptocurrency exchange.
7. The presence and level of customer support
It’s advisable to find out whether a cryptocurrency exchange has customer support; more importantly, it’s advisable to find out the level of customer support offered to customers. You can get information regarding the presence and level of customer support by contacting any cryptocurrency exchange’s customer support, or checking online forums and observing whether customers have made complaints about being locked out of their accounts or not being able to access their accounts to make deposits or withdrawals. If a cryptocurrency is associated with any such complaints, then it has poor customer support; therefore, you may have to consider other cryptocurrency exchanges.
8. The type of supported cryptocurrencies and traditional (fiat) currencies
Before selecting a cryptocurrency exchange, make sure its platform supports any cryptocurrency you’re interested in saving or trading: you should be able to store and trade your cryptocurrency on the cryptocurrency exchange of your interest. On the other hand, if you don’t have a cryptocurrency, but want to purchase anyone from the cryptocurrency exchange, then make sure that the cryptocurrency exchange accepts deposits of your country’s traditional (fiat) currency, or at least accepts deposits of any other popular traditional currency (such as the dollar, euro, or pound).
9. The type of user interface
For the sake of having good user experience, make sure the cryptocurrency exchange of your interest has an intuitive, easy-to-use, and swift user interface. However, it has to be noted that to a great extent, having good user experience depends on the type of device you intend to use for your cryptocurrency investing activities. If you’re someone who is always moving to and fro, then an exchange that has mobile app services would make it easier or possible for you to get the best user experience which can, in turn, help you take more efficient actions on the cryptocurrency exchange.
10. The location of the cryptocurrency exchange
Depending on your location in the world, it may be easier, better, and even safer and to use a cryptocurrency exchange that is in your country, rather than a cryptocurrency exchange that’s in another country. Using a cryptocurrency exchange in your country would make it easier to buy cryptocurrencies using your countries fiat currency, and also withdraw money in your local currency after selling cryptocurrencies; in addition, in case there is fraud, or the cryptocurrency exchange is hacked and you are affected, it would be easier to file a case against the cryptocurrency exchange, especially if it is registered with the government.