By Whether you are a first-time buyer looking to take the plunge into the unchartered territory of cryptocurrency trading or an experienced investor seeking to surf the swells, there are certain things every person should know when it comes to cryptocurrency exchanges.
Jurisdictional Regulations
The first and foremost consideration is the jurisdiction in which the cryptocurrency exchange is found as this will determine what regulations, if any, apply. According to Investopedia, the United States is the second largest market for cryptocurrency trading and cryptocurrency exchanges are governed by a multitude of regulations. Exchanges in Japan and South Korea are also heavily and increasingly regulated. Whereas in China cryptocurrency exchanges are banned and although certain Chinese exchanges have managed to circumvent this ban by moving their operations to offshore locations, the Chinese authorities have continued their crypto crackdown by blocking access to over a hundred of these offshore exchanges.
At present, cryptocurrency exchanges are generally unregulated in most jurisdictions with regulators taking a hands-off approach to regulate cryptocurrency exchanges. However, with almost $1 billion worth of cryptocurrency stolen in 2018 and a threefold increase in cryptocurrency crime from 2017, regulatory authorities around the world are ramping up national and international regulations in an attempt to better secure cryptocurrency exchanges. It is therefore advisable to keep up to date on any regulations or changes to regulations that may apply to the cryptocurrency exchange you are looking to transact with.
Fee Schedules
An additional consideration is that of the fee schedules levied by each exchange. As exchanges seek to make a profit, it is preferable to them to encourage large and frequent transactions. As a result, there are little or no fees levied against transactions that are over a certain amount. Smaller and infrequent transactions may not, therefore, be cost-effective.
Coins and Fiat
It is common knowledge that exchanges prefer and therefore encourage trading with coins as opposed to fiat currency. Generally, fiat currencies attract higher fees at exchanges in the form of deposit and withdrawal fees. Whereas when cryptocurrency is purchased with other cryptocurrencies there are mostly no fees or nominal fees are incurred. For example, and according to Investopedia, a small fee is charged by the occasional exchange for setting up a specific wallet for a certain cryptocurrency but on the whole crypto to crypto purchases are free.
Trading Access to All Coins
Notably, exchanges do not offer investors the opportunity to transact in all cryptocurrencies. As there is a proliferation of various crypto-coins, exchanges have made the decision to offer only certain digital currencies on their platforms. This is understandable when we consider the fact that new cryptocurrencies are being launched at a rapid rate, with the likes of Michael Owen, former Liverpool striker, already offering his own cryptocurrency OWN on the GCOX exchange.
Although, if an exchange fails to offer the cryptocurrency of your choice there are ways to circumvent this problem. For example, investors wishing to purchase Cardano’s ADA would have to use a fiat currency to buy bitcoin BTC on the Coinbase exchange and then import those coins from their Coinbase wallet into a wallet on the Binance exchange where that BTC can be used to purchase ADA. Some exchanges offer inter-wallet transfers although this will incur a fee depending on the exchanges that are used.
What other tips of the trade do you think are important to know when trading in crypto? Give us your thoughts in the comments below
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