How to choose a cryptocurrency exchange?
One way to buy cryptocurrency is to go through an online exchange but many newcomers have no clue about how to pick an appropriate one. For those who have bought the stock before, you don’t need to choose a stock exchange as there is only one stock exchange in Hong Kong, i.e. Hong Kong Stock Exchange. Instead, stock investors have to select brokerage firms which are regulated by Securities and Futures Commission (SFC). That means investors don’t need to do extensive due diligence on the firms before using the brokerage service as SFC is the gatekeeper to protect investors from being tricked.
However, it is a different case in the industry of cryptocurrency exchange. There is no gatekeeper in many regions including Hong Kong. It is the investor’s sole responsibility to choose a suitable exchange. In the following article, some important factors are listed out for your consideration. They fall into four main categories, i.e. cost, liquidity, speed and security.
For the cost, a cryptocurrency exchange usually charges deposit fee, withdrawal fee and trading fee. Deposit fee is charged when you deposit the fiat currency into the exchange. It is usually a fixed fee. Withdrawal fee is similar to deposit fee which is charged when you withdraw the money from the exchange. The trading fee usually is a percentage fee below 0.35% imposed when you buy or sell the cryptocurrency. Some exchanges may have a very low fee but there is a large spread between buying and selling price. The large spread can eat away at your profit. Apart from the fee collected by the exchange itself, the method to deposit money into the exchange can make a huge difference in the cost. For example, an exchange in Hong Kong can only accept Euro deposit in their bank account located in Europe. That means you need to pay a high cost to wire the money to their account. It is better to find an exchange which partners with local banks so you can transfer money with a very low fee.
Regarding liquidity, exchanges with high trading volume allow you to buy and sell a large amount of cryptocurrency at any time easily without affecting the market price significantly. In contrast, the market price can be manipulated easily when the trading volume is small. Since cryptocurrency exchanges are located around the whole world, trading continues non-stop. You may not need to trade for every second but you don’t want to wait for few hours when the price of bitcoin falls greatly in other exchanges. Exchanges operating 24/7 without disruption even under the market crash can lower your probability of losing money.
For security, a long-established exchange is probably more reliable than a newly founded one as there is no track record for the latter one and you don’t know whether they will run away after getting your deposit. Moreover, exchanges with longer history can offer you more information on their ability to deal with cyber-attack which is the major threat to this industry. It is very easy for new exchanges to claim they are immune from hackers but very few can maintain a low number of cybersecurity incidents after they have operated for more than 3 years. As suggested by many experts, storing cryptocurrency in your own wallet is safer than putting it in exchanges as they are the frequent targets for hackers. Therefore, whether the exchange providing the option to transfer cryptocurrency to the external wallet is important.
Regarding the speed, you may have heard that many major exchanges halt the registration for new users as the demand increase sharply and it takes time to go through “Know Your Customer” (KYC) and Anti-Money Laundering (AML) procedure. If you urgently need an account, you may try to open accounts in more exchanges. The influx of customers also lengthens the time for you to deposit money into and withdraw money from the exchange. This information cannot be found on the official website of the exchange. You may rely on Google, Facebook, Reddit and bitcointalk forum to know more.
Lastly, there are more than 1000 cryptocurrencies or tokens in the market. You are impossible to trade all of them in just one exchange so you should find out what kind of coins are listed before registering an account.
Good luck on trading!
