How to Choose a Crypto Exchange?

Introduction

The boom of the crypto industry over the last couple of years has led to massive adoption of the crypto space. With newer tokens and various projects being worked upon every day, the rise of crypto enthusiasts also saw a rise in the number of crypto exchanges. The rising interest would ultimately result in any curious crypto investors needing to make decisions about how to start investing in the crypto assets for some passive income including how to store their digital assets. 

To understand the absolute basic requirement for anyone to dive into the crypto market, let us take a look at what crypto exchanges are and take a deep dive into various types of crypto exchanges before choosing one to start investing in crypto tokens!

What Is a Crypto Exchange? How Does It Work?

To explain crypto exchange in simple terms; it is a platform on which you can buy and sell crypto assets. Any interested party can make use of the exchanges to trade one crypto for another, or they can simply use their choice of fiat currency – like INR or USD – to buy crypto tokens. These crypto exchanges provide the marketplace for crypto tokens, very similar to how e-com platforms like Amazon or Walmart, to be then chosen by any trader or investor or their portfolio. These exchanges also help facilitate a user to deposit money via methods such as direct bank transfer, net banking or P2P, etc, and charge a minimum commission or fee for every transaction done using its services. However, this rate is absolutely dependent on the exchanges. 

Any crypto exchange displays the current market prices of the crypto tokens they offer. One can simply transfer some fiat currency to their exchange wallets and invest in the token of their choice. They can also choose to convert those cryptos back into the Indian rupee or another currency on an exchange or use the token in their wallet in exchange for another crypto token!

What Are the Different Types of Crypto Exchanges?

With the rise in crypto exchanges to cater to the massive demand created by the crypto community, this new asset saw a rise of different types of exchanges. These exchanges differed in their type of offerings based on the requirements of the customer base.

Centralized Exchanges or CEX

The most common kind of crypto exchange platform is the centralized exchange. The benefit of using centralized exchanges is that they ensure industry’s best security, they are easy to understand, and simple processes along with a very smooth user interface for quicker and seamless crypto trading. However, staying true to what the name suggests, a central entity is responsible for governing and regulating these exchanges.

All order or transaction that takes place in a centralized exchange is recorded and validated by the company to maintain a thorough database and also avoid any further discrepancies. All of the user’s fund which is deposited in one of these wallets are managed by the CEX. Further, to open an account in a centralized exchange, the user needs to fulfill the KYC requirements where they have to fill in personal information. This step is incorporated by the exchanges to make them smooth and regulation friendly.

Decentralized Exchanges or DEX

DEXs are the kind of exchanges that are truly decentralized in nature. This means that there are no other companies or institutions regulating these exchanges. All of the trades that take place on a DEX are fully automated and are executed through smart contracts and other decentralized applications. As these exchanges are not monitors, there is no requirement for KYC, thus, there is no need for personal information here. Some crypto enthusiasts are of the opinion that decentralized exchanges are known to be more secure as they are automated with the usage of smart contracts, which are created keeping required security checks in mind.

Moreover, an interesting fact about these exchanges is that the interface of Decentralized Exchanges is not as smooth as Centralized Exchanges, which results in slower transaction speed and volume. It is usually noticed that users who are new to the crypto space or are beginners with trading cryptos, CEXs might prove to be more useful for them and DEXs can be handy for traders who are experienced in crypto investments.

Hybrid Exchanges or HEX

As the name suggests, Hybrid exchanges provide the best features of both decentralized and centralized exchanges. However, a hybrid crypto exchange is still something that is in the developmental phase; it has incorporated the feature of liquidity just like the one we find in a centralized platform while it included maintaining anonymity and security, like that of a decentralized exchange. Apart from getting the best features of DEX and CEX, one other most notable feature that traders can avail while transacting through HEX trading is that there are no taker fees and gas fees involved! 

Steps to choose a Crypto Exchange – Comparing Crypto Exchange Platforms

The crypto exchanges work similarly to how a broker works. It gives the traders all the tools they will need to execute the trades, like buying Bitcoin, Ethereum or other altcoins. However, there are certain criteria that need to be taken into account before choosing a crypto exchange. They are as follows:

• Step 1: Do Your Research

While choosing a crypto token for investment requires thorough research, choosing a crypto exchange to execute those trades also requires intensive research. This is to make sure the exchange adheres to all the requirements of the trader along with being an easy way for them to explore. 

While doing your research, took for the market sentiments regarding the exchange, and what the company is saying about itself. Have there been issues with security in the past, or have the exchange faced any hurdles along their journey so far; look for how has that exchange addressed those problems.

• Step 2: Go With Higher Security

While conducting your research, making a note of all the security measures set in place for the exchanges is also important. Keep an eye our for their Product Feature blogs, it will surely mention their security measures in detail! 

Irrespective of the security measures, for your safety keep some of your assets in a cold wallet, while you can keep the rest in the hard wallet. 

• Step 3: Transparency of the Exchange

Trust and transparency are an important part from the exchange’s behalf as mnat countries still do not have crypto regulations set in place. To identify a reliable exchange, evaluate the audit information of the exchange. Audit reports usually provide information regarding the financial health of a company.

• Step 4: Coins and Tokens

While the above points are ery crutial, it is also important to see if the exchange has a history of mass coin listing and delisting. Exchanges like CoinDCX has a 7M Model in place, which conducts a rigorous checek on any new token before listing them on their platform. 

• Step 5: Order Book Volume

Order book is a consolidated list of purchase and sale orders that is offered on the exchange. Higher Order Book Volume indicates that more traders and investors are using the exchange. This, in turn, leads to higher liquidity for existing investors while exiting any particular cryptocurrency.

• Step 6: Location of Exchange

Lastly, the location where the exchange is based out of is equally important. That is because it will determine the rules and regulations applicable to the exchange. Investors must be aware of the registered office of the exchange and the adherence to relevant law and legislature.

Criteria For Choosing Crypto Exchanges – What Should You Look at When Choosing a Crypto Exchange?

Exchange Fees

The quantum of fees levied is not the same for all exchanges, they vary from one exchange to another. While some exchanges charge a flat fee, some adds additional transaction charges. At times, exchanges levy fees at each step of a transaction.

Payment Method

The number of ways an exchange offers as payment getaways defines the commitment hey have to its users. 

KYC Compliance

Many crypto exchanges in India requires KYC Compliance to redeem profits. While the process is not lengthy, it safeguards investors from financial crimes.

User Interface

Before making a decision on a crypto exchange, making a note of the user interface offered by the exchange is very important. That particular step must be thoroughly tested for safety. It is a givem that security is a priority for both mobile and web applications. It should not be overlooked since digital tokens are prone to theft and hacking.

Customer service

The type of customer service a crypto exchange has also matters a lot! The faster the service, the more satisfied with the exchange any investor will be!

Types of Crypto Exchanges Charges in India

As mentioned above, there are various types of crypto exchanges available for investors to choose from. However, with the different types of crypto exchanges, there are also different types of fees that are available in the market. Let us take a look at what those are.

Joining Fee

Majority of the crypto exchanges in India, such as CoinDCX and others, have completely waived off the joining fee. However, some exchanges may still have a very small amount of membership fee in the case of inactive accounts.

Deposit Fee

This fee is charged when the user deposits money or coins to the crypto exchange to initiate the buying or selling. Deposit fee amount depends totally on how the user has transferred the money, whether through payment service providers, Mobikwik, a crypto wallet, UPI, Net banking or bank transfers.

Trading Charges

Trading charges are the most important part of the fee mechanism in a crypto exchange. This type of fees are levied as a flat percentage of the amount of crypto that a trader buys or sells. Another way an exchange may charge the trading charges is according to the type of orders placed; such as makers and takers. 

All exchanges has trading charges that vary. They may be ranging from almost 0%  to 0.25% in most of the exchanges. However, it is important to note that certain exchanges claim to charge the user zero fees, one must look carefully, that if they are charging in the form of spread — the difference between the rate of buying or selling the crypto. Usually, this rate is higher as compared to the trading fee.

Withdrawal Fee

Some exchanges charge the user on the withdrawal of money into fiat. Withdrawing money happens when a user places a sell order on the exchange and then the funds reflect in his or her wallet. The user here can withdraw money fully or partially, into their registered bank account, for which he or she may be charged. The user also has the option of making a withdrawal in coins, that also has a cost attached.

How Do You Open a Crypto Exchange Account?

It is a similar process to open an account with any of the crypto exchanges. Once you are done selecting an appropriate exchange, all you need to do is follow the below-mentioned steps to open a trading account:

• Download the app of the exchange you have selected and create an account.
• Fill up the necessary information like email id, name and contact details.
• After verifying the email, the user receives the mail on the same id for KYC details.
• Verify the address on your email id
• Complete the KYC process.
• Set a good strength password

Note: Never share any passwords of your app, wallet, or exchange as it is difficult to recover it.

How Do You Buy Crypto Tokens?

Once you are done creating an account in the exchange of your choice, it is fairly simple to buy the crypto toens of your choice. 

• Sign in on the app
• Transfer INR funds to your wallet
• Choose the token you will like to invest in
• Select the amount you would like to invest
• Place your order

Conclusion

Similar to any investment, make sure you have done your thorough research. It is important that you consider your investment goals and the current financial situation before investing in crypto asset. Crypto is an extremely volatile market, which means you should invest carefully and only invest the amount you are comfortable with.

Investing in your favourite crypto is extremely simple and safe on CoinDCX. All you need to do is download the CoinDCX App on your smartphone and enter the required details. Once the verification is done. Just fund your wallet and buy your desired crypto.

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