Once you have taken a decision to purchase bitcoins or other cryptocurrencies, you will surely have a need to choose a wallet and a good cryptocurrency exchange for your transaction. While the previous article of ours focuses on choosing a secure wallet, the present article will help you find out how to choose a good cryptocurrency exchange. As of the present time, there are myriads of cryptocurrency exchanges already, and many of them tend to be good places to get bitcoins. So if you want to make a good choice regarding the cryptocurrency exchange for purchasing bitcoins, follow the recommendations provided in this article.
Commissions & Fees
When pondering about how to choose a good cryptocurrency exchange, many traders and miners point to the commissions and fees, charged for depositing fiat currencies, trading, and withdrawing fiat currencies, in the first place. While it may be not as crucial when you only start trading with small amounts of money, it becomes of a paramount importance when you are going to invest large sums of money.
Commissions and fees also depend on the payment methods you choose (see lower): depositing and withdrawing money via bank transfers tends to be far cheaper (sometimes even extremely cheap) than doing so by using credit/debit cards. Good exchanges tend to be very transparent about the fees they charge, and this is the first thing you should pay attention to.
Another thing you should look out for is possible hidden fees. Solid exchanges don’t charge hidden fees, and, if you were charged such fees, it appears to be a good reason for changing the exchange. Some hidden fees may include:
- Fees for the verification of your identity. Some exchanges may try to charge extra fees for getting your ID verified. That’s not acceptable and you should immediately change the crypto exchange.
- Monthly wallet fees. Another type of ridiculous fees. If you notice that a cryptocurrency exchange states that it charges wallet fees, it is a solid reason not to sign up for that exchange.
- Huge fees on bitcoin withdrawals. Sometimes it may be explained by various pretexts (such as “mempool overload” or “transaction backlogs”).
- Excessive fees on fiat currency deposits. Actually, exchanges get charged by banks for depositing your money from $1 to $10. So, make sure that the fees you are charged for depositing your money are realistic.
Typically, normal fees charged by cryptocurrency exchanges include:
- Maker/taker fees (from 0.1% to 0.5%). Typically, the takers are charged higher for the transactions. The fees are calculated as a percentage of your buy or sell activity during the last 30 days.
- Conversion fees (from 0.5% to 5%). These fees (as it was stated above) largely depend on the payment method you are using.
- Withdrawal fees (varies across crypto exchanges). These fees are the ones that are charged for withdrawing fiat currencies or bitcoins.
- Miner fees (typically around 0.0001 BTC). Such fees ensure that the transactions get quickly processed by miners. Typically, they amount to 0.0001 BTC or $0.04.
Keep in mind that you should research about the fees of a particular exchange before you deposit your money there!
If you ponder about how to choose a good cryptocurrency exchange, don’t forget to think about the payment methods a particular exchange supports. That will not simply help you choose the most suitable and convenient payment method, but it is also likely to lower your fees. As it was pointed out above, such a payment method as bank transfer allows you to cut the fees sharply.
Typical payment methods on cryptocurrency exchanges include credit and debit cards, bank transfers, PayPal, cash, altcoins, and Webmoney. For example, Coinbase tends to be one of the easiest crypto exchanges with a friendly interface. However, its fees are typically quite high. Kraken (with a relatively difficult interface on the contrary), on the other hand, allows you to deposit and withdraw your money via bank transfers for incredibly low fees.
Trading Pairs and Liquidity
Regardless whether you aim to trade only bitcoins at first or you want to attempt other cryptocurrencies as well, the number of trading pairs is an essential issue when deciding how to choose a good cryptocurrency exchange. If a crypto exchange supports more trading pairs (altcoins), it gives you more flexibility on how to utilize your assets on this exchange. For example, Kraken supports quite many trading pairs, unlike, for instance, Bitstamp.
Liquidity is another important factor to consider. Actually, the importance of liquidity can be identified as the following two aspects. First of all, solid liquidity allows you to sell or buy bitcoins pretty quickly, which is a guarantee that, in case of a need, you will be able to sell your assets. Another aspect of liquidity is the fact that the higher liquidity is, the higher is the trust towards that particular exchange.
Ease of Use
Ease of use of a particular cryptocurrency exchange is an important factor for beginners. So if you are a beginner to the cryptocurrency world and pondering how to choose a good cryptocurrency exchange, you shouldn’t miss this factor as well. First of all, don’t use a decentralized exchange – it will be too complicated to get started for you.
There are also other features that are likely to be unfavorable for you:
- Not automatic withdrawal processes. I.e. you need to ask a permission in order to withdraw your money. You should definitely avoid such exchanges.
- Non–intuitive user interface. Even though it does not tend to be a critical aspect, it will be difficult for you to get started in cryptocurrency trading if you the user interface of the exchange you have chosen is non-intuitive. For example, such an exchange like Kraken can boast a large number of really great features (liquidity, trading pairs, low fees, trust and authority), but its interface barely suits to beginners.
- Numerous and extended server shutdowns. Why to sign up for an exchange if you can’t even do it right that moment?
Security must be the core issue when deciding how to choose a good cryptocurrency exchange. Indeed, you must choose a secure cryptocurrency exchange. Some factors that point to the relatively high security of an exchange are the following ones:
- The exchange supports and encourages users to use the two-step verification.
- New users should verify their address and identity before depositing money.
- The exchange supports storing bitcoins in cold wallets (read our article about cold and hot wallets).
- The exchange is clear about the security measures it undertakes.
On the contrary, the following signals may point to the relatively weak security of an exchange:
- Support of the exchange that does not answer for weeks and months.
- Allegations of the theft in the media.
- A noticeably different price of bitcoin of this particular exchange and other cryptocurrency exchanges.
- Inability of withdrawing your bitcoins fast (you have to wait days and weeks until the bitcoins get withdrawn).
Before you deposit your money, you should research about the quality of customer support on a particular exchange. You should make sure that that the customer supports answers the tickets and the verification processes are carried out quite quickly. Also, research about how the exchange’s support has answered to the tickets with deposit/withdrawal issues. If the result is rather negative, then it is a good reason to think about the practicability of depositing your money there.
Any solid exchange has a reliable community with forums and pages, where people participate in discussions and help others to get started or solve their issues. The signals that show that an exchange is worth your investments are the following ones:
- The exchange tends to be as much open-source as possible, allowing you, for example, to get APIs or front-end codes.
- The exchange makes donations and contributes to various cryptocurrency events and hackathons.
- You can expect to get help on the exchange’s forum and other services (like Reddit).
The final aspect to think about when defining how to choose a good cryptocurrency exchange is location. It is going about the location of both yours and the exchange’s. First of all, it somehow ensures trust when you know where the company is located and when it states its address. Secondly, cryptocurrency exchanges typically don’t make their services available everywhere (except LocalBitcoins). The majority of exchanges focus on serving the customers in the United States, Canada, and European Union. So, before you finally make up your mind regarding a suitable crypto exchange, make sure that its services are available in your country.