What is a cryptocurrency exchange?
Cryptocurrency exchanges are websites where you can buy, sell or exchange cryptocurrencies for other digital currencies or traditional currencies like US dollars or Euros. For those that want to trade professionally and have access to advanced trading tools, you will likely need to use an exchange that requires you to verify your ID and open an account. If you just want to make an occasional, straightforward trade, there are also platforms that you can use that do not require an account.
Types of exchanges
- Trading Platforms– These are websites that connect buyers and sellers and take a fee from each transaction.
- Direct Trading– These platforms offer direct person to person trading where individuals from different countries can exchange currency. Direct trading exchanges don’t have a fixed market price, instead, each seller sets their own exchange rate.
- Brokers– These are websites that anyone can visit to buy cryptocurrencies at a price set by the broker. Cryptocurrency brokers are similar to foreign exchange dealers.
What to look out for before joining an exchange
It’s important to do a little homework before you start trading. Here are a few things you should check before making your first trade.
Reputation – The best way to find out about an exchange is to search through reviews from individual users and well-known industry websites. You can ask any questions you might have on forums like BitcoinTalk or Reddit.
Fees – Most exchanges should have fee-related information on their websites. Before joining, make sure you understand deposit, transaction and withdrawal fees. Fees can differ substantially depending on the exchange you use.
Payment Methods – What payment methods are available on the exchange? Credit & debit card? Wire transfer? PayPal? If an exchange has limited payment options then it may not be convenient for you to use it. Remember that purchasing cryptocurrencies with a credit card will always require identity verification and come with a premium price as there is a higher risk of fraud and higher transaction and processing fees. Purchasing cryptocurrency via wire transfer will take significantly longer as it takes time for banks to process. Some exchanges don’t offer PayPal as a direct payment method, although it may be possible to complete a transaction via a third party
Verification Requirements – The vast majority of Bitcoin trading platforms both in the US and the UK require some sort of ID verification in order to make deposits & withdrawals. Some exchanges will allow you to remain anonymous. Although verification, which can take up to a few days, might seem like a pain, it protects the exchange against all kinds of scams and money laundering.