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I also get asked a lot about what exchanges to use. Here are some approaches to consider-
In general, START by looking into exchanges you already use and trust when trading, and see if they offer crypto. Commonly used online brokers are now offering crypto services, much like eToro and Robinhood have done. THEN based on your priorities (discovered below), start opening and using accounts. It’s often wise to transfer in small (low-risk tester) amounts, then over time rely more heavily on the exchanges you trust and enjoy.
ALWAYS REMEMBER, especially when starting out, test trading and transferring small amounts of value, first! Once you know it works, you can transact larger values. Many expensive and irrevocable mistakes have been made by users who did not test small amounts. For those of you interested in less practical, more technical and direct-from-source, ways of obtaining crypto, look into running a full node of the projects you like, and mining or staking accordingly. You can learn more about mining and staking in the consensus protocol section of this site.
SELECTING AN EXCHANGE
Note: If you are using a US exchange you’ll likely have to perform AML/KYC;personal verification. AML/KYC (anti-money laundering/know your customer)- stemmed from the Banking Secrecy act of 1970 to help combat money laundering. Requires financial institutions to keep close track of cash transactions, especially in excess of $10k.
When selecting what exchange(s) to use, consider what features are most important to you, such as: Verifications and info required to onboard:
There are a lot of different types of fees to consider. Fees for trading (buy/sell; taker/maker), funding (deposit/withdrawal), discounts for certain volume thresholds, or using native coin (i.e. binance coin).
Some exchanges also allow for users to earn returns by holding USDC (US dollar-pegged crypto) in their account. This compensates for debatably unethical fractional reserve lending practices that occur in traditional banking.
Different exchanges have limits on how much you can buy, sell, withdrawal, etc. within a given amount of time.
Examples of exchanges with higher limits- eToro, Coinbase, Coinmama.
Some exchanges have options for more advanced traders. These exchanges are usually not considered as “user-friendly”.
Examples of exchanges with more advanced trading options- Kraken, Gemini, LedgerX (options trading).
Location and compliance:
Exchanges can get shut down if they are doing business in a country that is not favorable to crypto, or is not compliant with local rules.
Some US only based exchanges like Robinhood and SoFi do not let you transfer funds to outside wallets.
Also consider loyalty programs (i.e. Binance coin), promotions for recruiting new users, earning while learning (i.e. Coinbase Earn), eToro offers Copytrader and $100k of practice money, etc.
A lot of the examples above are inherent to traditional, more centralized, exchanges. You may also want to consider a decentralized exchange.
Decentralized Exchanges (DEX): instead of a central exchange authority providing liquidity as the market maker (using a traditional order book model to orchestrate trading), users can provide liquidity for each other, and receive a return for doing so.
For example, Uniswap is a popular DEX that uses liquidity pools, via Ethereum smart contracts, to orchestrate trades.
DEXs may be better for investors with more blockchain familiarity, because it requires more awareness of network transaction fees, block times, integrating external wallets, etc. Centralized exchanges will be more intuitive for investors who are already accustomed to trading traditional securities.
DEXs often require less of an onboarding AML/KYC process.
Liquidity Pools-pool of tokens locked in a smart contract. Facilitate trades by providing liquidity. Incentivizes users to be market makers and provide funds for trading. Incentive comes from distributing trading fees collected, proportionately to those providing liquidity.
Liquidity Mining-involves providing monetary incentive for users to contribute to smaller liquidity pools. The larger a liquidity pool grows, the less prone it is to slippage. Slippage occurs when large and more impactful price movements happen per trade, due to not as much liquidity available in the pool.
BA in Economics. BS in Finance. Hostess of the Crypt Keepers’ Club. Passionate about research and data. I don’t fold sheets, I spread them.
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DISCLAIMER: Keep in mind that information on this site is only from my perspective, and this industry is constantly evolving. Do more research. Be accountable for your decisions. ALL INVESTMENTS ARE DONE SO AT YOUR OWN RISK!
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