With Crypto Exchanges Still Facing Serious Issues, Are Trading Platforms a Safer Bet for Retail Investors?
One of the drivers of the recent boom in cryptocurrency markets has been the interest from retail traders. While initially bitcoin and its offshoots were a decidedly niche product, the past three years have seen interest steadily expand in mainstream markets and among even the most novice of traders thanks in large part to eye-popping volatility. The result is a market that is on the rise but has yet to fully open the doors to “outsiders”.
Cryptocurrency exchanges, still the most popular way to exchange cryptos for fiat and other coins, are not always easy to use, and the industry’s track record when it comes to security and fraud could have already sunk other sectors. From high-profile hacks that seem to happen with alarming frequency to issues of inflated trade volumes and other forms of manipulation, exchanges seem to struggle to gain the stability they need to seriously expand.
On the other hand, online trading platforms — which unlike most cryptocurrency exchanges offer a variety of trading tools and leverage — that largely focused on traditional asset markets until now have started to enter the crypto arena. Unlike many crypto exchanges which are unregulated and operate in a relatively gray area, these online investment platforms are heavily monitored and regulated, adding to their overall credibility. As exchanges continue to battle their own demons, online trading platforms may slowly replace them as the go-to vehicle for beginner cryptocurrency investors.
Crypto Exchanges Keep Tripping Over Themselves
It’s not in doubt that exchanges remain the most popular destination for people to purchase and trade their crypto holdings. Major names like Binance and Coinbase have built massive platforms that are largely regulated and safe for consumers. As such, they’re still the top players in a market that is quickly becoming saturated. While it may seem like a good thing that the market is expanding so steadily, in truth it has been accompanied by some major growing pains.
Perhaps one of the most telling signs that all is not well in exchanges is a report that shows how much of the market’s actual trades are real. A recent study found that when examining lesser-known or lower-volume exchanges, nearly 87% of platforms reviewed reported questionable trading volumes, while 75% had some form of suspicious activity on the platform.
Aside from fishy activity happening within exchanges, many of them have proven less than adept at protecting consumers’ data and funds. A year-end report for 2018 found that roughly $927 million were stolen from crypto exchanges during the first three quarters of 2018, with the number surpassing $1 billion by December. Considering many of the most popular destinations are not immune from the current plague sweeping across crypto exchanges, traders have a good point in being somewhat suspicious.
Furthermore, while exchanges are becoming easier to use, the general crypto ecosystem is not always welcoming for beginners. From creating a wallet to logging in and starting to trade fiat for cryptos, the sector’s barriers to entry are immense due to the highly technical nature of the product.
Trading Platforms Offer An Easier Path
While crypto exchanges aren’t going anywhere — they perform the vital task of letting traders and institutions convert their fiat into a variety of crypto coins — trading platforms may offer a more accessible and secure path to attract mainstream traders and investors. As opposed to the sometimes-inaccessible exchanges, trading platforms are built for retail investors, and as such, provide tools to help beginners gain exposure to markets.
Whereas exchanges offer the ability to directly exchange fiat currencies for crypto as well as crypto for other coins, trading platforms provide an additional layer to help beginners and non-crypto traders navigate the market. Platforms like Monfex, for instance, provide built-in trading tools for charting, stop and limit orders, market signals, and educational resources that many exchanges eschew in favor of focusing on the exchange service alone.
Additionally, users can take advantage of social trading, following top investors and learning from their patterns and strategies. Perhaps more importantly, because these companies (and others like eToro and Plus500) were originally built for trading in traditional asset markets, they already have the infrastructure in place for regulation, KYC, anti-money laundering, and other crucial security features. This isn’t to say that trading platforms are immune from security risks, or that exchanges are fundamentally dangerous, but the market for the former has a long history of oversight and compliance.
Perhaps the biggest difference, and one that may be appealing to retail investors, is that trading platforms often provide margin trading for tradeable assets, giving users an opportunity to borrow from the broker to build bigger positions or diverse portfolios with smaller amounts of capital (despite the accompanying risks of leverage). Whereas crypto exchanges are built to simply facilitate trading one currency for another with no extra frills, online trading platforms are designed to provide traders with a more feature rich ecosystem that is filled with added-value and helpful tools. While this may not appeal to more expert traders, it can make a world of difference for beginners who are less familiar with crypto’s steep learning curve.
Novices Welcome
In the end, crypto exchanges still have ways to go to be fully mainstream-accessible. Although they have made major strides, implementing KYC and AML protocols alongside stricter adherence to regulations, the trend remains concerning. Inflated volumes, manipulation, and a barrage of hacks and fraud are real issues that cannot be ignored.
Trading platforms, meanwhile, also have some drawbacks, especially for expert traders. Though they offer leverage, they also make the process of simply owning coins for general use more complicated, as many exclusively allow buying and selling CFD instruments within their own platforms which are not actual crypto coins. On the other hand, they provide beginners with a safer and more accessible entry to the market. For that alone, they may be instrumental in bringing crypto’s opportunities to the masses.
