Since the launch of the Bitcoin network back in 2009, the digital assets market has considerably grown and got the attention of global communities. In today’s digital world, the future of cryptocurrencies has never looked so promising. Nowadays, people associate digital assets with utility, trading and investing, rather than hype. Therefore, probably now it’s the right time to get into the crypto scene and start trading digital assets.
So, how to get involved? The first step is to choose a cryptocurrency exchange — a platform for exchanging cryptocurrencies, tokens and fiat money. Fortunately, for now, there are hundreds of various exchanges that meet growing demand and fit the needs of traders and investors. At the same time, it makes the choice of the trading platform quite a complicated issue. Let’s dig deeper into this question and find out what features of trading platforms really matter.
First of all, it’s security
Obviously, when it comes to money, nobody wants to be fooled or robbed. That is why people primarily focused on security in case of choosing a financial provider of any type
What is security in application to crypto exchange? First of all, the security of the cryptocurrency exchange is the reliability of the storage of funds and personal data of users. Meanwhile, in general, cryptocurrency exchanges are notorious for hack attacks and stolen customers’ data. For example, twelve major cryptocurrency exchange hacks occurred within the 2019 year! Just imagine that “$292,665,886 worth of cryptocurrency and 510,000 user logins were stolen” in 2019 only, according to Cointelegraph news. Among other security risks of the exchange, there are technical errors that lead to losses. For example, recently as a result of technical issues on BitMex a lot of traders lost their money, including a famous cryptocurrency fund — Adaptive Capital.
Why does this happen? The key reason is poor security policy of the exchange coupled with insufficient regulation implemented in this area. Since the crypto industry is immature, there is no universal and well-established legislation considering the security measures that have to be implemented by the exchanges. That is why it is essential to research if the exchange ensures a high-security level to decrease both external and internal risks. An exemplary check-list of the issues to explore is presented below:
- What kind of server hardware is used? Is it compliant with international standards?
- Is the network equipment of the exchange protected from DDOS and SYN flood attacks? Were there any examples of successful DDOS attacks against this exchange before?
- Is access to the account safe? Exchanges have to use at least basic 2-Factor-authentication (2FA) and/or multi-signature functionality
- What is the jurisdiction the exchange is registered in? Is there special cryptocurrency legislation and how it works? Observe the regulations carefully.
- Is the exchange in charge of your funds? If so, beware of custody risk, typical of centralized exchanges.
- Any reputational risks? Probably an exchange already had any security issues, then, how did it cope with them?
Reliability
The second crucial issue is the infrastructure of the exchange. Specifically they ensure the reliability of the platform, as the technological inefficiencies of the exchange often result in losses for the customers. It happens even with well-established exchanges. For instance, Bitfinex was dogged by technical issues in 2017, while Bitmex also experienced technical issues in March 2020.
Therefore, make sure the infrastructure of the exchange is reliable even in case of high-loads.
Liquidity
One more thing we care about while trading or investing is liquidity. There is no doubt, any of us would like to buy or sell an amount of an asset we need at the price we want (this is what high liquidity is). Unfortunately, many exchanges have low liquidity that results in sharp price differences for the assets, especially when it comes to buying or selling large sums of an asset.
It is worth mentioning that centralized exchanges provide higher liquidity than decentralized (DEX) ones. However, in terms of security DEXes still hold the edge. Read more about the difference between centralized and decentralized exchanges here to understand the pros and cons of both.
Beware of fees and trading pairs
Furthermore, we all are aimed at trading or investing in particular assets, thus, make sure the exchange provides the trading pairs necessary for you. Do not forget to check the liquidity for the pairs you are interested in!
Also, it’s not a secret that the exchanges charge fees. They might depend on the type of the order, transaction size, and many more, even your trading activity level. Therefore, read carefully about the fees charged by the exchange and figure out if these fees fit your trading strategy. For example, if you plan to do scalping (it implies many frequent trades), probably it would be better to consider a lower per-transaction fee.
Fiat-to-crypto
Remember that not all the exchanges provide fiat-to-crypto trading pairs and a cryptocurrency purchase function via fiat. However, an opportunity to exchange and deposit fiat funds to the exchange may considerably save your time and make trading more convenient. Besides, if you are new to trading, you get a chance to buy cryptocurrency simply with a bank card. Thus, consider this function for your comfort: the services should be user-friendly, shouldn’t they?
Functionality
Undoubtedly, a range of functions provided by the exchange matter. Currently, margin or futures become extremely popular, however, not every exchange can offer these options. Check also the types of the orders available within the exchange and overall trading toolset that may contribute to your trading efficiency.
Also, you can look for passive income opportunities (for example, via participating in mining different assets of Proof-of-Stake networks (PoS)). Observe what to benefit from!
API (application programming interface)
It should be noted that the world goes automated, and trading is not an exception. High-frequency trading (HFT) is widely spread in the crypto market: traders use powerful computer programs and software to transact a huge number of orders in a matter of seconds. It requires high quality of connection to the exchange account, as well as high speed of the orders execution. It all depends on the API of the exchange. And, unfortunately, APIs of many exchanges are still far from ideal and do not allow traders to apply HFT strategies efficiently.
Thus, if you plan to use, for example, a trading bot, make sure the API of your exchange allows you to use it effectively.
User experience
Last but not least, it is important to observe the overall usability of the exchange. Find out if the interface of the exchange is easy to use: sometimes it can become a reason for the loss. What is more, observe the customer support quality and overall level of communication with the end-user: don’t you want to wait for a week to resolve your issue? Supposedly, you don’t. Therefore, you have to research and observe!
To conclude, although there are general issues to consider while choosing a trading platform, there is no “one size fits all’’ solution and no single answer on what exchange will fit particularly you. Therefore, before making a decision on a trading platform, first of all, understand your needs, priorities and what exchange products you need in your everyday trading activity.
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