Types of Cryptocurrency Exchanges

An overview of different types of exchanges and the list of the most popular ones, as well as description of the signing up process and models which exchanges use to generate their fees.

As you already know how to trade cryptocurrency, you need to find out about the place where you can buy and sell it, i.e. cryptocurrency exchange. Exchange platforms are perhaps the most important players in the crypto space.

Exchange platforms allow people to buy and sell cryptocurrencies, which is the easiest and most popular way of investing in cryptocurrencies. Exchanges are where the action is; they encourage trading, a source of income for many and many casual and full-time traders.

Signing up

Exchanges differ in how much personal information you must provide in order to start trading. Some, such as Kraken and Changelly, are as easy to sign up as any other website: you provide an email address and click the confirmation link. Though after creating an account, you may want to turn on the two-factor authentication (2FA) to make it harder to hack into your account. Other exchanges are much more strict when it comes to identity of their users because they must be KYC- and AML-compliant (Know-Your-Customer, Anti-Money Laundering). To sign up on these exchanges, you will have to provide a photo of your ID, a photo of you and your ID in your hand, or even your Social Security Number, if you are from the U.S.

Fee models

Though some trading platforms have general fixed fees, most exchanges use a maker-taker model, which encourages liquidity — the amount and frequency with which assets move around the exchange. Maker/taker fees depend on whether or not the order contributes to the liquidity — either you make liquidity or take from it. If your order satisfies other current orders, you are a maker, your order is processed immediately and you are charged less or none at all. If you want to sell higher or buy lower than most other orders, you are a taker, and your order will take some time to find a match, you will be charged more.

Some exchanges, such as Binance and KuCoin, create their own coins (Binancecoin and KuCoin Shares, respectively), which can be used as a payment method with a reduced fee. Native tokens encourage loyalty and act as a promotion tool, as their prices grow along with the popularity of the exchange.

Types of exchanges

Traditional exchanges work much like stock markets: they allow people to buy and sell cryptocurrencies at current market prices. They also charge a percentage from the order in the form of platform fees. Example: Kraken.

Cryptocurrencies brokers are similar to traditional exchanges, except they are the ones who set the prices. Usually, they are a bit higher, as they include current market prices plus premium. Example: Coinbase.

Direct trading platforms are services that match up user buy and sell orders. All trades are conducted in a strictly peer-to-peer way. These platforms are also called decentralized exchanges, or DEXs. Example: EtherDelta.

Popular exchanges

Coinbase is one of the most user-friendly platforms. It supports Bitcoin, Ethereum, and Litecoin. Purchases can be made via credit/debit cards or bank transfers. Due to its intuitive straightforward UI, Coinbase is an ideal choice for newcomers. Although it has relatively high fees ranging from 1.49% to 3.99%, depending on the payment method. Another downside is that it is not available in some countries due to regulation reasons.

Coinbase Pro (formerly GDAX) is a Coinbase-managed platform for experienced traders. It uses Coinbase Pro charges 0% for makers, and 0.1% to 0.3 % for takers depending on the order volume.

Kraken is one of the older, more established exchanges. It supports common fiat currencies, such as U.S. dollars, Canadian dollars, euros, British pounds, and Japanese yen. Kraken provides margin trading. Kraken’s makers are charged from 0% to 0.16% depending on the order volume, and takers pay from 0.1% to 0.26%.

Binance is one the largest exchanges in Asia. It supports over 100 cryptocurrencies. It has created its own token, Binancecoin (BNB). Their platform fee is 0.1% for all trades, however, BNB holders are offered discounts.

Bittrex is a Seattle-based exchange. It gained a reputation for its willingness to comply with all the appropriate U.S. regulations. It is a safe option with good customer support. All trades on Bittrex have a 0.25% fee.

These are only five out of hundreds of exchanges. Make sure you do your own research before signing up on them. Take a closer look at platforms and learn more about their fee models. Their popularity depends on the region, as different countries have different regulations and requirements.

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