How to compare cryptocurrency exchanges

Posted: 30 September 2020 9:05 pm
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The best way to compare cryptocurrency exchanges is to know how to do it yourself.

It can be tough to choose the best cryptocurrency exchange for your needs when there are so many to choose from.

Comparison websites can be very helpful, but it can also be hard to trust them if they aren’t clearly and transparently disclosing their commercial interests.

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That’s why at the end of the day, there’s no substitute for doing your own research.

This guide will walk you through some of the aspects of cryptocurrency exchanges to consider, and show you how to see for yourself which exchange is right for you.

If you want to start comparing exchanges, make a shortlist of the exchanges you're considering, and try following these steps for each of them so you can see for yourself how well they stack up.

Comparing fees

If you’re looking to compare value for money, that means going to exchange websites and comparing the fees.

A quick way to find the fees page on almost any exchange is to go to the home page, then scroll all the way down to the site index at the bottom of the page. You’ll almost always see a “Fees” link in the index.

Head to that page, and you'll get a nice overview of the costs.

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You can safely ignore the fees that won’t apply. For example, if you don’t plan on doing any margin trading, you won’t need to worry about those fees.

In this case, we can see that the base fees are 0.1% per trade, with a few conditional discounts to consider.

It’s also worth paying special attention to the deposit and withdrawal fees. If you can’t see them listed with the rest of the fees, you may have to create an account and go through the motions of heading to the deposit screen to see the fees.

Fortunately, this isn’t usually necessary in practice. As a general rule of thumb, you can make zero-fee AUD deposits and withdrawals on most Australian exchanges with POLipay, PayID and other methods, courtesy of Australia’s fine banking infrastructure. This is the case with Binance.

It’s worth noting, however, that certain payment methods such as cash will invariably cost more. It’s also important to remember that the obvious fees are only one part of the cost. For the complete picture, you also need to consider the spreads – the exchange rates, essentially – when buying crypto on different platforms.

Comparing rates

The spread refers to the difference between the current market value of the cryptocurrency and the amount you’re paying for it in AUD, like the exchange rate.

It will vary over time and depend on the situation. For example, different cryptocurrency purchases, different base currencies, different exchanges and different amounts spent can all affect the outcome. As such, it can be a good idea to check the spread whenever you need to make a purchase, if you're interested in finding the best deal possible.

On most exchanges you can find the spread by creating an account and walking through the steps to make a purchase. You will see the cost before confirming the transaction.

To do this on Binance, for example, you would:

  1. Create an account and verify your identity (takes about 5 minutes if you have ID on hand)
  2. Make a deposit (free with PayID and Osko)
  3. Fill in the fields on the buy page with a hypothetical transaction and check the quoted prices

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In this case, we can see that a $1,000 purchase of Bitcoin would net us 0.066125 BTC. To find the spread, we can then compare this to the mid-market prices for Bitcoin at the time, denominated in AUD.

For example, if we search for current Bitcoin prices online we find:

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In this example, the difference between the Binance prices (first image) and the mid-market Bitcoin prices (second image) is the spread.

To help make it easier to compare the spread across different exchanges we can drop those two numbers - 0.66125 and 0.66469 in this case - into a percentage calculator to see what exactly the difference is.

In this case it comes out at just 0.5%.

Because the spreads are almost like a "hidden fee" of sorts, and because the cost of these spreads often makes up more than 1% of the total price, it's well worth paying special attention to them and comparing them across different exchanges prior to purchase.

Comparing security

The overarching security hazard is the fact that you’re entrusting funds to a cryptocurrency exchange, meaning you could be affected if it gets robbed, goes insolvent, turns out to be fraudulent or if something else goes wrong.

On traditional finance trading platforms, customer funds are often insured, held with a registered custodian and segregated from the funds of other customers and the trading platform itself, by mandate.

However, in the newer and still evolving cryptocurrency space, these mandates mostly aren’t there yet, meaning cryptocurrency exchanges are largely responsible for developing their own security frameworks.

Binance, for example, puts 10% of trading fees into its Secure Asset Fund for Users (SAFU) similar to a form of self-insurance. Other exchanges opt for varying grades of third party insurance coverage or forego it entirely.

A good at-a-glance test for security is to look for the oldest, largest and most popular exchanges. Platforms with poor security typically don’t survive long enough to get old, while larger and more popular exchanges are targeted more frequently, so can be assumed to have better security.

Trading volume is a good overall indicator of how big and popular an exchange is. This information can be found in the many exchange data aggregators available, such as CoinMarketCap, Nomics and CoinGecko. It’s worth consulting multiple sources to make sure you’re getting a clear view.

Comparing features

It's also worth considering the features available on an exchange, especially if you're looking for more than just basic buying and selling, or if you have something specific in mind.

One of the most attractive features appearing on more and more exchanges is the ability to earn returns on your cryptocurrency holdings, so that your assets can go to work instead of just sitting around in an exchange wallet. Binance is one of a handful of exchanges to offer this, but many others are following suit.

If this appeals to you, it could be worth looking for that feature in particular.

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Other features to keep an eye out for include:

  • Easy crypto-to-crypto swaps. If you think you'll be doing direct trading between different cryptocurrencies, you may want to look for exchanges with portfolio rebalancing features, or that facilitate direct swaps between different cryptocurrencies.
  • Crypto loans. Many people are now using their cryptocurrency as collateral to take out loans.
  • Derivatives and margin trading. Many exchanges offer higher risk trading opportunities, which can be a much faster way of losing, or making, money on the volatility of cryptocurrency.

Crypto selection

Cryptocurrency selection is one of the easiest things to compare. More supported cryptocurrencies mean more options, and if there's a specific cryptocurrency that you're interested in buying, look for an exchange that supports that coin. Once again, exchange data aggregators can be very helpful for this.

It's also worth considering how quickly exchanges list promising-looking coins after they appear. In many cases, there's a lag of weeks or months before exchanges list them, but sometimes it can be as fast as hours or days instead.

In the end, the best exchange for you depends on what exactly you're looking for, and best way to find it is to know how to compare exchanges based on the elements that are most important to you.

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Disclosure: The author owns cryptocurrencies including LINK at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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