Investors should rate cryptocurrency exchanges as rigorously as any other institution offering– financial services. You cannot trust any exchange from the Google banner, just as you cannot place all your savings in the first bank you come across.
What is a crypto exchange?
A cryptocurrency exchange is an electronic platform where people trade digital assets. As in traditional currency exchanges, the participant’s task is to make a profit – buy at a lower price and sell at a higher price.
Exchanges can only deal with transactions with different types of cryptocurrencies (Bitcoin, Tether, Ethereum, Ripple, and others) or exchange electronic money for currencies (dollars, euros, and so on).
How to choose an electronic platform?
To determine the choice of the exchange, you should take into account several points:
Given that the rules governing cryptocurrency trading vary from country to country, it is essential to check where the cryptocurrency exchange you choose to trade is located on.
Since most exchanges cannot serve every country in the world, make sure the exchange you choose allows you to trade legally on it.
As a rule, cryptocurrency exchanges prohibit traders from Cuba, Iran, North Korea, Sudan, or Syria from trading on their platform. However, there are sites on which the list of sanctioned countries is more expanded since the exchange falls under the requirements of US sanctions control.
If you are determined to adhere to the legal aspects as much as possible, then you should choose a cryptocurrency exchange from your own country.
A crypto exchange that falls under the laws of your country will greatly simplify legal solutions to any issues. Of course, you can use crypto exchanges from other countries, but you should understand that such platforms are also not fully responsible.
Cryptocurrency exchanges in the same legal framework as you may even insure your funds. This means that in case of loss of your funds, the exchange can compensate for the damage, although not everyone complies with such guarantees
- Users’ feedback. Visit Bitcointalk or Reddit and read comments from people who have already worked on this exchange.
Is the exchange subject to a jurisdiction with strict laws to protect crypto traders? Take the time to familiarize yourself with the registration documents of the exchange and its money laundering policy (AML/KYC). Examples of reliable jurisdictions that are attentive to the legal aspects of cryptocurrency exchanges are the United States, Switzerland, Japan, Singapore, Taiwan, and South Korea. It is best not to use exchanges located in countries of the world where there is weak consumer protection.
- Who runs the organization?
Spend an hour looking for information on the founders of the exchanges. Be careful and only use data from authoritative sources that value your reputation (The New York Times, The Washington Post, Financial Times, The Guardian), because the information in the media is a common occurrence in the rumored crypto market.
If the answers you received satisfied you and made you take a closer look at several exchanges, refer to the functional features:
What is the liquidity of the exchange?
It is enough to look at the daily trading volume of the exchange, for example, on the Coinmarketcap website. Focus on the leaders’ performance.
- Are you satisfied with the list of trading pairs?
The principle, that the more pairs, the better, does not always work. If you have specific currency preferences, look for exchanges that offer the maximum number of pairs with your chosen currency.
- Identity verification
The overwhelming majority of reputable crypto exchanges strongly recommend that client verify their identity. Many sites limit the maximum withdrawal amount to 24 hours for users who have not passed verification, or simply refuse service and or freeze withdrawals. If you wish to work anonymously, please read the client agreement carefully.
- Size of the commission
It is vital to review site fees for operations. A small amount will be debited from each transaction in favor of the exchange. Make sure it suits you, and compare it with several other services. Some exchanges talk openly about fees. Others try to hide the data. Better to choose the first. The same principle works with hacker attacks: if the exchange openly reports them, this does not mean that it is drowning, but that its technical department is working on errors.
The Bottom Line
The better option is to start with a small deposit to check the functionality of the exchange and make some trades. If you can withdraw the money you have put in, it means that there are prerequisites to trust the trading platform. All in all, do your research based on the mentioned tips to choose the most suitable cryptocurrency exchange for you.