Not all cryptocurrency exchanges are the same, and they are certainly not equal. Some providers will even lie to attract users. How can you tell them apart and choose the right one for you? We look at the features by which crypto exchanges must be compared, after providing an introduction to crypto exchanges for the beginner trader and examining the pros and cons of decentralized and centralized exchanges. We conclude with the answers to common FAQs (frequently asked questions).
What Are Cryptocurrency Exchanges?
Crypto exchanges are platforms that enable transactions between buyers and sellers of Ether, Bitcoin, etc., as well as between such cryptocurrencies and fiat (such as AUD, USD, and GBP). Non-fungible tokens (NFTs) can also be exchanged via these platforms. These exchanges are owned privately and are either centralized or decentralized.
Centralized crypto exchanges (CEXs) are like digital stock markets. The exchange gets an income from transaction fees and commissions. It brings buyers and sellers together. The exchange process works through an order book system, whereby sell and purchase orders from users are sorted by value to find matches between the two parties. A CEX can limit trade to specific cryptocurrencies and exclude ones in which confidence is lower.
Decentralized crypto exchanges (DEXs) allow traders to transact directly with each other. Buyers and sellers trade via their crypto wallets. DEXs work on blockchain technology. Privacy is increased and costs lessened. Beginners are advised to stick to CEXs.
Pros and Cons of Centralized Crypto Exchanges (CEXs)
Pros: CEXs are less complex than DEXs and easier to use, with no need for crypto wallets and direct trade with other users. The user’s account provides their balances and from there, they simply transact. A CEX offers better security and more reliable transactions. Some CEXs allow users to borrow money against their investments to transact. This can bring high gains, but potentially big losses could also result.
Cons: CEXs, like any company holding huge amounts for its users, is more prone to hacking. Its transaction fees can be exorbitant the higher the trade amount. Users do not keep their digital assets in their digital wallets where they can protect them. This exposes the user to more chances of fraud. There is a particular risk (and history) of CEXs crashing and users losing everything.
Pros and Cons of Decentralized Crypto Exchanges (DEXs)
Pros: DEXs provide greater protection from theft, fraud, or collapse of the exchange as users hold their digital assets in their own wallets. The market cannot be manipulated due to decentralization. The know-your-customer (KYC) regulations do not apply, allowing users total anonymity. There is no restriction on cryptocurrencies that can be traded.
Cons: A DEX is a less user-friendly platform than a CEX. Users must remember their wallet keys and passwords to access them. If this information is lost, it cannot be retrieved. DEXs do not lend themselves to transacting with fiat, thus users must already own cryptocurrency. Only one percent of exchanges are DEX, thus at times when trading volumes decline, there is less liquidity.
Features for Comparison of Exchanges
When comparing different exchanges, regardless of whether they are CEX or DEX, security is the primary concern. Users desire security against collapse, fraud, or theft.
Each exchange has its own pricing structure. For example, some exchanges earn percentage fees of what a trader makes while others charge users trading fees. Users need to compare cryptocurrency exchange fees between them. This can be done using the OKX Crypto Converter Calculator, found at OKX.com.
Ease of use is another desirable feature of cryptocurrency platforms. The operation of interfaces must be seamless.
The level of personalized customer support and speaking to a person and not a bot when a user has questions is an essential feature for beginner traders and even for those with more experience.
The exchange must provide upfront information on which cryptocurrencies it uses.
Payment options differ between exchanges. These may include MasterCard or Visa, bank wire transfers, or only crypto. Choose an exchange that offers the services you prefer to use, such as a method of payment.
Frequently Asked Questions
Question: Can the best crypto exchanges be found in my country?
Answer: The answer is no. Top exchanges are based around the world, in the USA, Japan, Germany, and elsewhere. However, the location of the crypto exchange has no effect on the user as every act and transaction is performed digitally.
Question: How do I choose the best crypto exchange for my needs, as a beginner?
Answer: Reread the section on the pros and cons of centralized and decentralized exchanges. You are better off with a CEX as a novice or inexperienced trader. CEXs also offer you better security and ease of use. CEXs account for 99% of all crypto exchanges, so you need to make a further comparison of the ones you are interested in considering. Compare the main features outlined above for each CEX on your list. Also, compare options using the OKX Crypto Converter Calculator link.
Question: How does a cryptocurrency exchange differ from a brokerage?
Answer: To put it in simple terms, a crypto exchange facilitates the buying and selling of cryptocurrencies between two individuals using the platform as a medium for these sales and purchases. The crypto exchange operates as a go-between when the two parties transact. You make an offer to buy Bitcoin and the other person makes an offer to sell Bitcoin. The crypto exchange aligns the two offers. One person gains from the transaction and one person loses.
On the other hand, with a brokerage, it is the middleman between you and the stock market. You can use a brokerage account to invest for long-term gains or trade in the short term to make a profit. As the user or client, you tell your broker when to buy or sell assets.
In conclusion, remember that you are the client and want to work with an exchange that takes you into account, for example, offers you a choice of ways to pay for fees and trading transactions. Do your homework before you begin trading, start small, and continue to educate yourself on crypto trading.