Choose the right virtual currency exchange can be one of the most important start-up tasks a trader or investor has to deal with. Choosing the wrong platform can lead down a path fraught with wasted effort, inefficiencies, or even losses.
When looking for the right exchange, stakeholders must first know what they want to achieve. For example, is the objective simply a long-term investment or is it trading regularly? Investors can find exchanges right away. These are the platforms where you can buy and sell real digital assets.
On the other hand, traders may be interested in derivative products – trading products such as futures and options based on the price action of the underlying spot assets. These products trade contracts based on the price action of the underlying asset and can be settled in cash or digital assets, depending on the exchange.
Once a trader has determined their goals, it is important to consider aspects such as country regulation, currency security and a host of other aspects. Here are the important criteria that should be considered when choosing the best exchange.
Criteria for choosing the best virtual currency exchange
Here are some criteria for evaluating and choosing the best and reputable virtual currency exchanges that any trader should know about.
KYC / AML
Different exchanges comply with different laws and regulations, based on their location, practices and services. Some exchanges are required to register to know your customer (KYC) and anti-money laundering (AML) registration, which requires participants to submit personal information about themselves during account creation.
These practices and requirements vary from exchange to exchange. Some platforms require KYC and AML to withdraw funds or lift certain limits, forcing customers to provide photo ID copies and sometimes proof of residency. Currently, many virtual exchanges also prohibit customers residing in certain countries from registering their exchanges.
Reputation
The cryptocurrency industry in general is still a new industry, it is important to be aware of the reputation of each exchange you are interested in. Many virtual exchanges engaged in nefarious, hacked and defrauded activities and then escaped, leaving users in panic situation, causing great harm to users.
It is important to carry out searches on different exchanges, search for them on Google for the term “scam” and see the resulting reviews about it. Searching the exchange on various forms of social media can also be helpful, to see if any complaints have been posted. It's also helpful to review each platform's terms and conditions, noting anything alarming or inappropriate to consider.
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Virtual currency exchange security method
Each cryptocurrency exchange has its own chosen security methods. Make sure the exchange offers two-factor authentication (2FA). Otherwise, the exchange may not be acceptable by current security standards.
Also, see what kind of 2FA is supported. Google, Authy, and Yubikey authenticators are three popular forms of 2FA as they are said to provide better security than mobile text-based 2FA. Each exchange also has many other security measures that may be worth checking out, such as asset cold storage and escrow services.
insurance fund
Users can also observe whether their interest exchange has an insurance fund or not. Certain exchanges have funds to compensate clients in specific circumstances. There are several exchanges that are insured by the Federal Deposit Insurance Corporation (FDIC), which can protect a specific amount of user funds.
exchange Fiat
Traders and investors at some point in their careers will likely require a fiat compatible exchange that will allow them to transfer national currencies (USD, CAD, VND) into the crypto world for commercial use and withdraw from the crypto world for profit.
Some exchanges have different fiat options that are compatible with specific banks, and some do not. Check which exchanges are affiliated with which banks to work with, as well as which fiat currencies are tradable.
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leverage the negotiation
Derivative exchanges often offer leveraged trading services. Basically, leverage allows traders to borrow a certain amount for trades, based on how much they hold on the exchange.
Leverage can be important for traders who want to enter short-term trades on a larger scale. Many exchanges offer leverage ranging from 1x to 100x, although different platforms may have different rules for settlement and margin.
Trading volume on virtual currency exchanges
The best cryptocurrency exchanges are ranked based on the number of participants using them at any given time, as well as the amount of each cryptocurrency traded. This aspect can be important as it affects how easily a user can enter or exit trades.
If a trader is looking to sell 100 BTC, he may not be able to do so on a low volume exchange because there are not enough sellers who can survive the current market price listed, forcing the trader to sell at a discount.
Volume issues often complicate altcoin transactions on certain exchanges, making it difficult to buy or sell large amounts of this virtual currency. Checking volume can sometimes be a daunting task due to exchanges posting fake volumes.
Another way to gauge volume is to check third-party websites that provide this type of data. Coin360, CoinMarketCap and OnChainFX are 3 websites that list different types of volume data.
Price
Asset prices also vary on various exchanges. Cryptocurrency prices may trade higher or lower on one exchange than on another due to participant trading, volume, and other factors. Note that these differences can lead to the choice of an exchange, especially when trading altcoins. Spreads can also be an indication that a particular exchange may have low trading volume.
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Cryptocurrencies allowed on virtual currency exchanges
Major cryptocurrencies like Bitcoin, Ethereum (ETH) and Litecoin (LTC) are widely available on most virtual currency exchanges. However, other smaller capital coins and tokens may not be available on certain exchanges.
Therefore, it is important to know which cryptocurrencies each exchange allows to be traded in order to choose the right options.
Rate
Most exchanges charge a fee per transaction. These fees vary by platform and are usually based on a percentage of each transaction. Fees may not be as important to investors as they are to traders. Traders buy and sell more frequently, raising fees more often, although this depends on the size of each trade in relation to the size of the investment. Some exchanges also have fees and limits for withdrawals.
Epilogue
The 10 criteria above can be good examples of things to consider and research when choosing the right cryptocurrency exchange for you. Although they vary from person to person based on goals, values and activities. However, once it enters the cryptocurrency market, skepticism and thorough research are needed to get the best value from this growing futures industry.