You can buy cryptocurrency by opening an account on a crypto exchange. These platforms allow trading, buying, or selling of cryptocurrency. The rise in the subscription of cryptocurrencies is making more exchanges to be available with varying features, fees, and offerings.
But making a decision often becomes problematic when abundant choices are available. This article highlights various considerations that you need to be aware of to evaluate and select the right exchange for you.
How Do They Work?
A cryptocurrency exchange acts as an online marketplace for digital currencies. You can purchase cryptocurrency using these platforms like online brokerages. These platforms allow you to deposit an amount using a fiat currency like US dollars. Also, you can convert cryptocurrency (fiat) and add it to your debit or credit card.
A few exchanges often allow the users to enjoy an interest in the assets they hold.
What Are the Considerations?
There are numerous things you should consider while shortlisting a crypto exchange. These include the security features, fees, or supported cryptocurrencies. Another aspect that is worth mentioning is the storage of the currencies. You can maintain a digital wallet to store your currencies.
The exchanges offer both decentralized and centralized formats. You can opt for any one of them, depending on your preferences. Keep in mind that centralized exchanges have regulatory bodies overseeing their transactions, but the same is absent in a decentralized platform.
A centralized cryptocurrency exchange will require you to provide identity proof to operate on the platform, while the same may not be necessarily true for the other one.
The unregulated transactions of a decentralized platform may sound scary to a few people. However, these platforms also provide transparent transactions, and you can use peer-to-peer exchange for trading.
How to Buy Crypto?
Centralized exchanges allow the purchase of cryptocurrency via fund transfer from a bank account or any regular mode of payment. You can even buy crypto with a credit card. You can exchange the funds for crypto later. Some exchanges offer simple operations, while others let you use advanced order types.
The exchange will hold your cryptocurrencies in a wallet. Ideally, your assets are kept in cold storage. You have an option to transfer the cryptocurrencies into your possession using private keys from such cold storage facilities.
How to Open an Account?
Opening an account requires you to undergo the KYC or know your customer process as per regulations. You may have to answer a few personal questions and help the cryptocurrency exchange verify your identity using third-party applications. The exchange can also ask for a digital copy of your ID.
After the verification process is complete, you have an option to deposit funds and start your crypto purchase.
How to Shortlist the Best Exchanges?
It is ideal to go through the various resources available to understand the pros and cons of each exchange. The top choices for crypto exchanges can depend on several factors. You can weigh these factors basis the impact they will have on your trading and investment.
The most significant factors include withdrawal fees, trading fees, and storage options. Other critical factors that you should not miss include the platform’s reliability, customer service, and the number of supported cryptocurrencies. Furthermore, you can add several factors depending on your research and end goal.
Rating the Exchanges
There are numerous rating mechanisms available to quantify the performance and viability of a crypto exchange. You can categorize the exchanges into the following categories:
- Fees for transactions and account creation
- Level of security provided
- The number of offerings available
- Availability of seamless processes
- Presence of standard features
- Availability of a mobile application
You can quantify each into several more minor variables and assign a score between zero and one. The short-scale will help to give you a polarised result and make a decision quickly.
Once you are through with this, you can weigh these scores to an established overall rating for each exchange. This approach will help you get to your preferred choice of crypto exchange that meets the necessary criteria.
Warnings to Note
So, you are aware of various factors that can help you make a wiser decision regarding crypto exchanges. However, you must note that your investments in decentralized finance, cryptocurrency, or any similar instrument carry an inherent risk. It is ideal to consult a professional before making any financial decision and not abide by online tips or speculative documents.
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