Crypto exchanges function similarly to online brokers, providing you with the tools you need to buy and sell digital currencies like Bitcoin and Ethereum.
When choosing a cryptocurrency exchange, it is important to look at factors such as supported assets, fees, payment methods, and security.
Warning: Cryptocurrency exchanges are typically not governed by laws or regulations. Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors.
Read on to learn about the best cryptocurrency exchanges, how they work, how to choose one and alternatives to invest in digital assets under the control of financial authorities, leaving minimal space for avoiding laws.
What is a crypto exchange?
Cryptocurrency exchanges are platforms for trading cryptocurrency against traditional currencies. Some exchanges may provide a level of anonymity for users and transparency of both trading parties. Companies can use these platforms to accept or purchase cryptocurrencies of their own and these are the most common ways for businesses to begin investing in cryptocurrencies. Cryptocurrency exchanges can also be used as practical mediums for international trading to cut down on transactional fees.
To qualify for inclusion in the Cryptocurrency Exchanges category, a product must:
- Accept payments of cryptocurrency in exchange for goods or services
- Facilitate traditional blockchain transactions
- Facilitate the deposit and withdrawal of cryptocurrency funds
Why do we need crypto exchanges? Because it is not possible to buy crypto directly from your bank or stockbroker. Without exchanges, you would have to find another person willing to trade cryptocurrency and agree at an exchange rate. Then, you would have to trust that person and send the coins directly to each other’s cryptocurrency wallets — a convoluted process.
Alternatively, you can access crypto assets through an authorized online broker in a regulated environment, without having to interact with a crypto exchange. Cryptocurrency brokers enable indirect trading by moderating between customers and the market.
How does a crypto exchange work?
Depending on the type of cryptocurrency exchange, they work in diverse ways. You can either buy crypto using fiat currency, such as the U.S. dollar, or trade crypto-to-crypto, depending on which exchange you choose.
An established service will offer a variety of cryptocurrencies. When using a crypto exchange, it is possible to convert your crypto to fiat currency, withdraw it as cash, or leave it in your account for trading. Depending on which exchange you use, the services available can vary. Unlike the traditional stock market, cryptocurrency exchanges operate 24/7.
To start using a crypto exchange, you’ll first need to set up an account, complete the KYC (Know Your Customer) verification process and provide identification documents (ID and proof of address). After your account gets verified, you can use the crypto exchange to buy or sell cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Polkadot (DOT), Dogecoin (DOGE), and others.
Despite having broken into the mainstream, crypto can still be a confusing subject for investors of all levels. Read our guides to understand the ins and outs of cryptocurrency.
- What is cryptocurrency?
- How crypto trading works?
- How to buy cryptocurrency?
- How to invest in cryptocurrency?
- What are cryptocurrency trading platforms?
- What are cryptocurrency stocks?
- What is cryptocurrency ETFs?
- What are the best cryptocurrencies to invest in for 2023?
- What are the next cryptocurrencies with the potential to explode
- Cryptocurrency price predictions 2023, 2025, and beyond
Different Types of Crypto Exchanges
There are two types of cryptocurrency exchanges – centralized and decentralized.
Centralized exchanges (CEXs)
Centralized crypto exchanges resemble traditional brokerage platforms. Many traders who do not wish to create a crypto wallet and perform direct blockchain transactions choose to interact with centralized crypto exchanges.
CEXs allow buyers and sellers to trade cryptocurrency and convert it for fiat currency. The live order book is the most valuable tool for this. Live buy and sell orders are displayed in the order book, directly affecting the cryptocurrency's exchange rate. When using a CEX, it’s essential to understand the different order types, as they are similar to the ones found on traditional stock trading platforms. Each exchange determines the price based on its trading volume. Therefore, an exchange with more users will offer more market-relevant prices.
CEXs also offer margin trading options such as futures and perpetual contracts.
There are sometimes slight differences in the prices of cryptocurrency between different exchanges. When these limited opportunities arise, traders may attempt crypto arbitrage. The consensus is that centralized exchanges offer faster transactions, ease of use, high liquidity, and fast deposit and withdrawals. Some of these exchanges also offer Mastercard or Visa cards. These credit cards are directly attached to users' accounts and allow them to spend their balance in real time.
But CEXs may present some security issues. Many hackers have attacked cryptocurrency exchanges centralized in the past, causing customers to lose their funds. Although some of the funds were traced back to their owners and returned to them, the threat remains. CEXs are also highly exposed to fraud. Some CEXs are not fully transparent about their processes and liquidity. Some big, centralized exchanges have disappeared or blocked withdrawals unexpectedly, causing customers to lose their funds.
Decentralized exchanges (DEXs)
The other type of crypto exchange is decentralized exchanges (DEXs). They don’t offer the option to create an account but instead require users to connect their crypto wallet to enable any type of transaction. The security of the wallet is up to its owner.
Decentralized exchanges function with the aid of liquidity pools (LP) and do not rely on any centralized entity to facilitate trades. These LPs are created by users who choose to deposit their crypto pairs to facilitate crypto exchanges. Their incentive is the rewards received from each trader that uses their liquidity pool. Since it is a decentralized platform, anyone can set up a liquidity pool for a new cryptocurrency. Many fraudulent projects have done this before.
Although long-term crypto investors prefer decentralized exchanges, DEXs require a deeper understanding of blockchain technology. These platforms require a lot of learning. DEXs do not offer customer support and may not be recommended if you are a first-time crypto investor.
When using a decentralized exchange, users may expect higher fees. The usual fees are the exchange fees (which are largely used to reward liquidity providers) and blockchain fees, or gas fees. The blockchain fees are strictly for the crypto miners or crypto stakes who maintain the blockchain network and are independent of the crypto exchange. The gas fees always vary and are paid in the blockchain’s native coin. For instance, for Ethereum swaps, the gas fees are paid in Ether (ETH), and you always need to make sure you hold some of it in your crypto wallet.
Cryptocurrency exchanges vs. online brokers
When comparing cryptocurrency exchanges with online brokers, traders must understand the core differences between the two types of services.
Cryptocurrency exchanges' primary function is to provide crypto-to-crypto and crypto-to-fiat pairs to their customers.
When using a crypto exchange, you own the cryptocurrency and are directly exposed to all inherited risks, such as fraud, insufficient liquidity, deposit or withdrawal limitations, or security breaches.
And the most important risk to consider is that crypto exchanges, as well as the entire crypto industry, remain unregulated entities. Any loss you may suffer due to the poor management of the exchange could be definitive.
Another important aspect for traditional retail investors is that crypto exchanges offer only cryptocurrencies. However, crypto exchanges are expanding their options. They specialize in, for example, staking. In staking, traders basically donate a particular crypto asset to some promising project on a blockchain in exchange for some reward.
A cryptocurrency broker is a provisional concept, as by that we mean a traditional brokerage that provides access to the international market for cryptocurrency trading. This means that cryptocurrency is not a priority area of operation of such platforms, but rather one of the several groups of instruments along with fiat, such as stocks, indexes, forex, commodities like gold, silver, oil and gas, bonds, and ETFs.
Online brokers offer lower trading fees but also fewer crypto assets. As a rule, a crypto broker offers two options for cryptocurrency: rate fluctuations trades, and investing.
Trading based on the fluctuation of rates is one of the most demanded options. The trading is not carried out directly with cryptocurrencies, but rather with CFDs. CFD is a contract for the difference of prices concluded between the buyer and the seller. The subject of the contract is the difference in the price of the underlying asset as of the time of opening the position and closing the trade.
CFDs allow you to speculate on the price movements of cryptocurrency without owning it. This means that you can trade in any direction. If you believe the price will rise, you can go long (open buy) or short (open sale) to speculate on the price movement.
It’s important to understand that CFDs can be leveraged products. You do not have to deposit the entire value of a crypto CFD position to trade them. Instead, you can only deposit a margin. Leverage trading can be used to increase exposure and multiply your profit, but it may also cause higher losses if the market goes against you. It’s recommended to practice CFD trading with a demo account before you invest real money.
>> Learn more about CFD trading
Virtual currencies are newcomers to the world of exchange-traded funds (ETFs). Bitcoin ETFs allow investors to get exposure to the enticing potential of BTC without having to safely store it. Currently, ProShares Bitcoin Strategy ETF (BITU) holds Bitcoin futures contracts, while other crypto-linked ETFs can hold stocks of companies with exposure to cryptocurrency.
>> How to trade and invest in ETFs
Why trade in cryptocurrency with a licensed broker like CAPEX.com?
- Increased liquidity. Asset prices can be sourced from multiple sources, which increases liquidity. Trades can be executed quickly and at lower prices as a result.
- Trade long or short. The trade will only be profitable if it increases in value. CFD traders can take advantage of falling prices by trading CFDs.
- Leveraged exposure. CFD trading is leveraged. You can open a position with a margin that is only a fraction of the trade's total value. You can get a lot of exposure to cryptocurrency markets with very small capital.
- Traditional shares dealing: ProShares Bitcoin Strategy ETF (BITO) is the first Bitcoin-linked ETF in the U.S. designed to provide investors a straightforward way to add Bitcoin exposure to their portfolios.
- Faster account opening. Because we are exposed to the underlying markets on your behalf, you will not require access to the exchange. It won't take you long to create and manage an account on the exchange. This will allow you to get up and running much faster. With our application and online verification, you can trade in as little as five minutes.
How to Choose a Crypto Exchange
If you are looking to open an account on a cryptocurrency exchange or want to use a crypto wallet connected to a decentralized exchange, you’ll want to learn more about the following topics.
Your cryptocurrency holdings won't be protected by any central institution. Some exchanges offer some types of insurance policies that protect cryptocurrency users from fraud and hacking. It is estimated that about $2.72 billion has been stolen from crypto exchanges since 2012.
When looking for a crypto exchange, it’s essential to keep an eye out for fake websites and mobile apps. Even if the platform seems legitimate, make sure to check for any misspellings in the copy, inauthentic branding, and, in the case of a website, whether there’s a small lock icon indicating security near the URL bar.
When choosing a centralized crypto exchange, always choose to protect your account by activating two-factor authentication (2FA). This means that you will need to verify your identity beyond your username and password. You may feel more secure with popular exchanges with a large customer base. Newer exchanges may not have the same security features in place.
Fees are something to be aware of when using a cryptocurrency exchange. Not all exchanges have the same fees, and these may vary widely for accessing different services on the exchange.
Although exchange fees can be fixed prices, they are usually a percentage of the trade. Most exchanges make their money from trading fees, which are charged for each transaction, and may vary depending on whether you are the buyer or seller. You may be charged different fees depending on the currency you trade.
Other fees you may have to pay are deposit and withdrawal fees, which may be significant. Before you hand over your cash, ensure you know what the exchange will charge you for crypto transactions.
Although there are thousands of cryptocurrencies, including metaverse coins, NFT coins, or DeFi coins, there is not one crypto exchange that offers all of them.
While popular coins like Bitcoin and Ethereum can be found on almost any crypto exchange, meme coins or altcoins with smaller market caps may not be. These coins can be even riskier than more established ones. New cryptocurrencies are always seen as highly speculative ones.
Liquidity and Trading volumes
Another criterion for choosing a crypto exchange should be available liquidity. A big exchange that has enough volume will allow you to trade, buy, and sell your crypto instantly. The most popular exchanges often have the highest trade volumes.
Cryptocurrency is a volatile asset, and trading on a high-volume exchange may offer the opportunity to buy or sell it at a slightly better price. If an exchange has little trade volume, it could mean that you pay a higher price than if you were to use a more popular one.
Crypto exchanges can be ranked based on their trading volumes using price-tracking websites such as CoinMarketCap or CoinGecko. However, trading volumes can be easily faked by exchanges, and crypto investors should be aware of these fraudulent tactics used by some platforms hoping to attract more users.
Top 10 crypto exchanges
As of November 2022, these are the top cryptocurrency exchanges according to their 24h trading volumes, web traffic, and average liquidity, according to CoinMarketCap.
- Binance ($15,433,460,377)
- Coinbase ($2,249,071,23)
- Uniswap ($1,309,768,182)
- dYdX ($1,011,532,351)
- Kraken ($922,408,116)
- KuCoin ($666,359,337)
- Curve Finance ($592,739,888)
- Bitstamp ($207,799,212)
- Bitfinex ($175,692,361)
- Gemini ($46,833,357)
Binance is the largest cryptocurrency exchange in terms of the trading volume. It was founded in 2017 and has rapidly extended. The exchange has over 90 million customers around the globe. Users can trade, buy and store digital assets on Binance and access over 380 cryptocurrencies and thousands of trading pairs. The platform has a special version for US investors, called Binance US, with fewer crypto pairs.
Coinbase is a US-based cryptocurrency trading and investment platform founded in 2012 that allows users to store, buy or trade cryptocurrencies easily. It is considered easy to use and intuitive for beginners. The platform supports basic transactions, digital wallets, and PayPal and bank withdrawals for over 230 coins. Coinbase also offers an “Advanced Trade” option for more experienced users.
Uniswap is one of the most widely used decentralized exchanges (DEX). It was launched in November 2018 and has developed the automated market maker model. Uniswap is based on the Ethereum blockchain (but it is now available for other chains, too) and uses a variety of smart contracts to secure crypto exchange among users. Uniswap V3 (the 3rd version) offers better rewards for liquidity providers and supports over 45% of all trading volume on decentralized exchanges.
dYdX is another popular non-custodial decentralized exchange (DEX). dYdX is based on an audited smart contract on blockchains such as Ethereum. The mathematical derivative equation dy/dx determines the rate of change. To scale trading, dYdX launched a custom-built Layer 2 protocol (L2) for cross-margined perpetual. dYdX also intends to launch its own blockchain to avoid delayed transactions and improve overall performance.
Kraken is a US-based cryptocurrency platform launched in 2011 that allows users to trade, buy and sell over 200 digital assets at relatively low commissions. The exchange provides many services, including spot trading, margin trading, and futures trading. Crypto holders can also stake crypto on Kraken and earn rewards.
KuCoin is a cryptocurrency exchange founded in 2017 with the goal of facilitating the global free flow of digital value. Futures trading is supported, as well as a built-in exchange called P2P (peer-to-peer). You can also instantly purchase cryptocurrencies using a credit card or debit card. The platform has over 20 million users and offers over 760 cryptos.
Curve Finance is an anonymous and decentralized protocol (DEX) with multi-chain access, known for its stablecoin trade. It uses an AMM model (automated marketplace maker) to match liquidity. Anyone can supply liquidity to any of the liquidity pools. This protocol is decentralized and anonymous. Curve pools are smart contracts that allow for the exchange of multiple tokens.
Bitstamp was founded in 2011 and is one of the most established centralized crypto exchanges. It serves over 4 million customers worldwide and is available in more than 100 countries. It claims that the exchange offers a simple, accessible, and easy-to-use platform. Bitstamp offers over 70 cryptocurrencies.
Bitfinex is one of the oldest centralized cryptocurrency exchanges, and it offers over 170 cryptocurrencies. It was founded in 2012 by iFinex Inc., the Hong Kong-based company that also owns Tether (USDT), which is the largest stablecoin by market capitalization. Bitfinex supports both fiat currencies as well as crypto and was created for professional traders and institutions.
Gemini is a New York-based cryptocurrency central exchange founded in 2014. It is regulated by the New York State Department of Financial Services, and it is available in all 50 U.S. States and more than 60 countries. Although it has fewer crypto assets than competitors, the platform is focused on security and compliance. Both beginners and experienced traders can use the platform.
Final words on crypto exchanges
The best crypto exchange may differ for each investor, as you may be looking for different services. Beginners may be more inclined to choose more intuitive and easy-to-use interfaces, while more advanced traders will choose an exchange that offers more advanced trading instruments.
But when it comes to cryptocurrency investing in general, as well as crypto exchanges, investors should be aware of the huge risk of fraud. It’s a known fact that cryptocurrency exchanges have been repeatedly a target for hackers. Since these platforms remain highly unregulated, they are not required to offer a transparent and updated report regarding their liquidity.
After many of these exchanges collapsed, it’s been proven that their founders have not been fully honest about the traders' funds. A recent case is the FTX crypto exchange, which collapsed in under three days at the beginning of November 2022. The FTX collapse caused at least $1 billion of customer funds in losses.
Retail investors may find a suitable alternative for crypto exchange by using an online broker that enables indirect trading by moderating between customers and the market. Unlike crypto exchanges, traditional brokerages are under strict regulations from financial authorities and are required to be members of a compensation fund.
Before you start trading in cryptocurrency, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more-informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for crypto investors who are looking to make a transition to leveraged trading.
Why should someone consider using a cryptocurrency exchange?
You may want to use a cryptocurrency exchange if you want to own the cryptocurrency exchange. You may use the exchange to buy, trade, or hold your crypto funds or sell them and withdraw the funds back to your bank accounts. You may also use a crypto exchange to purchase crypto and then withdraw it to a non-custodial crypto wallet for long-term holding or to trade it on decentralized exchanges.
How can you be sure a cryptocurrency exchange is legitimate?
Crypto exchanges are highly unregulated, but customers may check the basic facts about the exchange, such as legal documents, founding team, and legal address. Crypto platforms such as CoinMarketCap or CoinGecko also list most cryptos and crypto exchanges and rank them based on trading volume and other criteria. Investors should also check the security measures set by the exchange and how are the crypto funds stored. If an exchange has nothing to hide, it should offer proof of its assets.
Do crypto exchanges charge fees?
Yes, crypto exchanges charge trading fees and deposit and withdrawal fees. These fees vary greatly from one exchange to another, and crypto investors should research the current fees before creating an account.
How do you buy crypto?
If you want to buy crypto, you need to open an account on a cryptocurrency exchange. Many offer direct bank transfers or even credit or debit card purchases for crypto. If you want to keep your crypto for a longer time, it is recommended that you withdraw your crypto to a non-custodial crypto wallet. That way, you are the only one who can access the crypto funds.
How much money do you need to buy crypto?
Cryptocurrency is a volatile asset, and prices fluctuate. Each cryptocurrency has a different price, but investors can also purchase only a fraction of the coin. For instance, Bitcoin is divided into units as small as 0.00000001 BTC.
How do I open a crypto exchange account?
To open a crypto exchange account, you will need to choose a platform that is available in your geographical location. Then you will have to complete the KYC (Know Your Customer). After providing all required documents, such as ID and proof of address, you may use deposit funds into your account and start using it to purchase or trade crypto.