Cryptocurrencies have been around for a while now, and their popularity is only increasing. This has led to the rise of cryptocurrency exchanges, which allow you to buy, sell, and trade cryptocurrencies. However, not all businesses are created equal. Here are three things you need to consider before using a cryptocurrency exchange.
1. The security of the exchange
Security should be the top priority for all cryptocurrency users. After all, cryptocurrencies are digital assets that can quickly disappear in thin air if they fall into the wrong hands. This means you should only use an exchange that offers good security measures to protect your funds and personal information.
Good security at an exchange is vital to protecting your investments and ensuring you can continue trading. If you are not careful, your cryptocurrency can disappear in an instant.
You must consider how much an exchange cares about security before using it. You can do this by checking reviews and researching the kinds of security measures they have in place, such as two-factor authentication, cold storage, and email alerts when certain transactions occur.
You can also check to see if exchanges follow industry best practices regarding security. For example, some exchanges hold the majority of cryptocurrencies in cold storage, which keeps them offline and inaccessible to hackers.
2. The liquidity of the exchange
Another thing to consider before using a crypto exchange is how liquid it is. Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.
Liquidity tends to vary from one cryptocurrency market to another, and it fluctuates over time. For example, you can buy and sell Bitcoin quickly and easily at any time because Bitcoin has the highest degree of liquidity in the cryptocurrency market.
Unfortunately, you can’t always do this with smaller cryptocurrencies or less liquid markets. For example, if you bought Stellar Lumens (XLM) during an altcoin bull run last year, you might have found it hard to find a buyer when you wanted to cash out. This is because XLM has a low degree of liquidity, and it’s possible you would have had to sell your Stellar Lumens at a lower price than you initially bought them for.
It’s essential to consider the liquidity of an exchange before starting to use it so that you can avoid being stuck with assets you can’t quickly sell. That way, you can ensure your funds are always liquid so that you don’t miss out on any trading opportunities.
3. The fees of the exchange
Finally, it’s a good idea to check cryptocurrency exchange fees before using an exchange to make sure they align with your needs. Cryptocurrency exchanges typically charge fees for trading, withdrawing, and depositing cryptocurrency. These fees can vary depending on which exchange you use, so it’s essential to consider them before deciding where to start trading.
For example, some exchanges charge higher trade fees but lower withdrawal fees. This could be a good option if you are planning to trade cryptocurrencies frequently, but you might want to choose an exchange that charges lower withdrawal fees if you don’t want to pay too much when you move your cryptocurrency into an offline wallet.
It’s also important to consider the volume-based maker-taker fee structure used by some exchanges. These exchanges offer substantial discounts on trading fees for high-volume traders, though they might not provide these discounts to low-volume traders.
It’s also a good idea to consider cryptocurrency exchange withdrawal limits before signing up for an account. These limits vary depending on the payment method you use, but they can typically be increased with proof of identity or proof of residence. Some exchanges might even require proof of income if your monthly cryptocurrency trading volume is high.
Well, there you have it. By considering these three things before using a cryptocurrency exchange, you can ensure you are choosing the right trading partner to suit your needs.