New to cryptocurrency or long time investor, if you want to buy or sell coins in a safe way you need to use a cryptocurrency exchange.
Coins are not stock or investment funds, they are digital assets you own after the purchase. Instead of owning paper bills, like fiat currency, you’re getting digital coins backed by decentralized blockchain-powered platforms. You can consider the coins as the currency for using the apps built on top of them.
What is an exchange?
An exchange is a web platform that facilitates direct person to person trading. You can buy, sell, or exchange any of the listed cryptocurrencies.
According to what it’s your goal in the field, you need to choose the type of exchange:
- Trading exchanges
These are platforms that act as a middleman between buyers and sellers completing the transaction at a fixed imposed rate for a small fee. This type of service requires high transaction volume, this is why they’re listing only the coins that are in high demand.
- Direct trading exchanges
As traditional exchanges, these guarantee a place where individuals can trade at their desired rate. The price is set by the market, based on supply and demand. If you’re looking for certain coins, you should research on which markets they are listed on and trade there.
Which one is for you?
First of all, you should choose the type of exchange. Are you happy with the fixed price of a trading exchange? That’s the easiest way to buy and sell the coins with the highest demand, like Bitcoin, Ethereum, or Litecoin.
Are you looking for a specific cryptocurrency? You can find on Coin Market Cap on which exchanges it is listed under the ‘Markets’ tab.
If it’s listed on multiple exchanges, that’s great, it means it’s in good demand. But it’ll make your choice harder.
How can you differentiate between exchanges?
- Geographical Restrictions
As listed on the official list on Bitcoin.org, 30 countries already have their own local exchange. Some are open for everyone, some are restricted to the local market, other chose to exclude specific countries due to regulatory requirements. If this information isn’t obvious, you should check the FAQ page.
- Payment Methods
Where do you currently store your fiat currency? While most of the exchanges accept only wire transfer payments, there is also one which includes credit card and PayPal deposits. Also, based on the method you’re using the duration of your transfer is affected. This, if you don’t already have your funds in cryptocurrencies, which is not far from reality given the fact that businesses have many reasons to accept cryptocurrency as payment.
Each exchange has its own fees for deposits, withdrawals, exchange rates. While you can be tempted to choose the one with the lowest fees, you should do your own research use only the most reliable services and not be chasing the money in this decision. Although, you should consider too high fees too. You don’t want to pay more than you get in a transaction?
What do you need when you’re joining an exchange?
First of all, you’ll need an account. Email and password, maybe username. You can’t maintain your anonymity as long as you’re trading only cryptocurrencies. Because the majority of exchanges require a certain level of verification. Most of them split them in tiers. And they work like this:
- Tier 1
Set up the basic requirements, email, password, username along with a two-factor authentication being allowed to deposit and withdraw only cryptocurrencies with a daily limitation. This can be considered, in most cases, as a trial version.
- Tier 2
For fiat currency deposits and withdrawals you’ll need to provide your ID verification by sending a photo of your ID and one with you holding it in your hand to be verified. At this tier, you’ll be able to deposit and withdraw accepted fiat currency also with a daily limitation. Usually to a few hundred dollars. More than enough for most investors.
- Tier 3
This tier is for companies and organizations and it requires personal verification by the exchange’s stuff. If you are in the business, you should follow their instructions and personally contact them for further details.
Once your account is verified, you’ll have full access to their services. You can make transactions, exchange the listed cryptocurrencies, even margin trade some of them.
Some exchanges to start with?
If you’re in U.S., Coinbase is the most popular choice for trading Bitcoin, Ethereum, and Litecoin. They even feature their own direct marketing platform, GDAX that uses your Coinbase account. Get verified once for all the services. Other options are Poloniex or Livecoin.
In Europe, there are Bitfinex and Kraken as full-service exchanges.
Available in most of the countries, Bittrex is the leader in trading volume and cryptocurrencies listed on the market.
Some local exchanges are BTC Markets (Australia), Bithumb (Korea), Huobi (China), and QuadrigaCX (Canada.)
Disclaimer: the author does not promote any of the exchanges or cryptocurrencies mentioned in the article as better than others. Do your own research and pick wisely!.