How to choose the best Cryptocurrency exchange?

12th Jul 2020
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With digitization becoming the new way of conducting business across the globe, cryptocurrency exchanges have capitalized on this trend quickly. The speculative digital asset with fluctuations inherent in it has captured the attention of both amateur and experienced crypto traders. 


In this article, let us get to know some factors to consider for picking the best cryptocurrency exchange. 


  • Place of operation - As every nation in the world does not accept the usage of cryptocurrencies, it is critical to know whether they are legal within boundaries before launching the exchange. It is important to stay abreast of the latest regulations in a dynamic business environment. Some exchanges may not accept local citizens as users. Users must also know the flexibility provided in day-to-day trading with cryptocurrencies and fiat currencies.  In countries where cryptos are considered illegal, it is better not to inaugurate an exchange to avoid the risk of losing funds when there is a crackdown by authorities. Pump and Dump schemes are becoming the new kinds of frauds in countries where cryptocurrencies are hardly regulated. 


  • Authenticity - With connectivity spreading far and wide, it is crucial to verify before making a decision to sign up with an exchange. With fewer entry barriers, anyone can claim of operating a Cryptocurrency platform. It is important to cross-check with trusted sources such as discussion forums on Reddit and Twitter, reviews from websites, and reports by enforcement authorities. Check out the company’s previous experience in handling user’s funds and track record of any completed projects. Users should put their money in reputable exchanges to ensure their safety.


  • Security -  As competition intensified between well-established exchanges and new exchanges trying to get a foothold in the industry, incidents of hacking, data breach and identity theft occur frequently. Every exchange must invest in building robust security for its users. Steps such as two-factor authentication, jail login, and end-to-end encryption will go a long way in assuring users of high-end confidentiality and privacy. Exchanges must store user’s funds in a mix of hot and cold storage wallets. Adherence to Know your Customer (KYC) guidelines and Anti-Money Laundering (AML) regulations are also required to be followed. 


  • Insurance fund - Insurance policies can be taken to meet an unforeseen emergency situation. Compensation can be provided to users if the exchange is held at fault.  Access to depositing or withdrawing funds must be decentralized with multiple ways of deriving it. Diversification of funds will ensure better risk management. 

 

  • Liquidity and Payment methods - Popular cryptocurrency exchanges will always possess sufficient liquidity. They have a trusted user-base who regularly trade on the platform, which contributes to a high volume. This results in a smooth settlement of orders without delays. Sometimes, liquidity may drop a bit due to increasing requests for listing from multiple players simultaneously. This can affect the expansion plans of a few traders as they may be forced to list on smaller exchanges that have low trading volumes. Exchanges that operate internationally must offer multiple modes of payment, such as credit card, debit card, and Paypal. The gateways must process transactions instantaneously and protect the data of the users. 


  • Customer support -  Most of the successful exchanges deliver prompt customer support round the clock. The availability of a team that can speak multiple languages is a plus point. Poor customer support can affect user retention and hamper daily operations if there are increasing cases of negative reviews and complaints. 


  • Different types of fees - To stay afloat in the market, many exchanges charge different kinds of fees for various activities such as deposits, withdrawals, and other transactions. The charges reduce with more volume of trade. Established exchanges which are functioning for a long time generally charge high fees. Some platforms offer very low fees if trades are executed using their customized coin. 


  • Supported tokens - Tokens that are backed up by major fiat currencies and cryptos are considered more trustworthy. Exchanges that offer innovative options such as Stablecoins will witness a better trading volume. Additionally, the platform must support 24x7 trading and be transparent in disclosing the prices and other financial information to authorities. Some long-term users can be offered free tokens in recognition of their patronage. 


  • Usability - A simple interface with an eye-catching display will attract users to the platform. Efforts must be made to present as much information as possible, keeping in mind the space constraints. Showcasing charts and graphs will help in analytical decision making based on real-time data. With the focus shifting towards convenience, exchanges must be comfortable to use on multiple devices. This will ensure the seamless functioning of daily operations. At the same time, the exchange’s interface must be updated regularly, keeping in mind the changing preferences of customers.


            All the above-mentioned factors must be taken into consideration in the process of picking the best cryptocurrency exchange. Every platform cannot possess all the factors at once, and there would be certain variations between one exchange and another. However, users can invest their money in exchanges that possess a majority of the essential characteristics.

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