The primary function of a cryptocurrency exchange is to enable people to trade their tokens and coins. Here, trade simply means converting one token to another or swapping cryptocurrencies.
Exchanges have distinct features and services that is why one should make a diligent assessment before trading. An individual should assess issues ranging from security, support services and liquidity levels. We are only going to explore a few of the most important aspects which a trader should evaluate.
The fundamental features to assess include:
- Geographical location and restrictions;
- Transaction fees;
- Security and support;
- Volume and liquidity.
The exchange’s history
An individual should study the history of the exchange he/she intends to use. It is important to know its location, how prone it is to attacks and phishing. For instance, research on whether it has been attacked in the last five or more years. One should also find out if the exchange has had a time when it disabled withdrawals. Any such negative issues mean you better look for another exchange.
Location and restrictions
An individual should know the geographical location in which the exchange offers its services. For example, some exchanges only cover regions such as Asia, Europe or Africa. Thus, you need to know if it covers the area where you live. Also, some exchanges do not offer their services to certain countries due to varying reasons, such as political instability or economic sanctions.
Trading pairs and payment options
First, one needs to know the pairs which the exchange has. In this case, you evaluate if the pairs you are interested in are on the exchange. It is not wise to assume that an exchange has all trading pairs. Therefore, one needs to do his/her own research before putting funds into it.
The other important aspect to find out are the payment methods which the exchange has. You may need to check if you can buy cryptocurrencies using your local currency or major currencies, such as the United States dollar (US$). If you want to buy cryptocurrencies using credit cards or certified merchants like PayPal, then you need to ascertain this before joining the exchange.
Types of orders
This is something that is very important if someone is a regular trader. The individual needs to find out the type of orders people use on the platform. Popular orders include iceberg order, market order, shop order and limit order.
Trade volume and liquidity
Cryptocurrency exchanges have different trade volumes. Some have very high volumes whereas other have low volumes. The level of activity in the exchange indicates the preference people have towards it.
Overall, a high trading volume shows that many people have confidence in the exchange. It also shows that it has high liquidity. In such a case, the exchange processes the orders almost instantly. You may not need to have a scenario where the order takes over 24 hours to process. Sadly, in some situations, traders end up cancelling their orders because of liquidity challenges.
As a fact, if you want to trade major cryptocurrencies like BTC, ETH, CARDANO and Binance Coin, it is wise to choose centralized exchanges. Centralized exchanges are more liquid and process transactions in less time than most decentralized exchanges.
On the other hand, if you want to trade the less popular coins, it is important to go for a decentralized exchange. The reason is that the listing fees on centralized exchanges are often very high and many emerging crypto projects may not afford it.
This is one feature that is very important when choosing an exchange to use. You should choose an exchange with high-security features and an outstanding track record on that. This is because many hackers target exchanges that have high trading volumes and liquidity.
Generally, decentralized exchanges (DEXs) have better security features than centralized ones. The reason for this is that decentralized exchanges do not use vulnerable middlemen. Instead, users directly place their orders, avoiding any intermediaries.
Google Authenticator and 2 Facto authentication- 2FA
Although these two are not major issues, they help to secure your crypto assets. However, most exchanges require people to use Google Authenticator and 2 Facto authentication. Using a combination of complex captchas, Google Authenticator and 2 Facto authentication adds proper safety measures to prevent malicious actors from accessing your funds.
Training tools and support
Training tools are essential for people who are new to an exchange, as they access information that helps them to trade successfully. Some exchanges have video tutorials and how-to- articles.
Apart from the training tools, there is a need for quality support service. The question is how reliably the team helps to solve your problems. In some worst cases, we have witnessed crypto exchanges that take over three months to solve simple problems. This ends up stressing you beyond your limits. Therefore, the best thing is to find out how quick the exchange is in solving customer queries.
A wise decision would be to join the social media communities of your targeted exchange and find out how they address the problems which the users face.
In a nutshell, an individual should research on the various features and services of the exchange he/she intends to use. Blindly using an exchange may result not only in stressful experiences but also in loss of one’s digital assets.
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