Choosing the right crypto exchange can make all the difference when it comes to keeping your funds safe, maximizing returns, and having a positive trading experience.
But with over 700 crypto exchanges worldwide, it's not easy to pick the best one. Many platforms have been hacked, charge massive hidden fees, or don't offer the specific features you need. And how are you supposed to compare so many options?
In this post, we identified 5 categories and 52 variables that you can use when choosing a crypto exchange.
Methodology
We identified 52 variables that can help you research a crypto exchange. To simplify the process, these can be grouped under five main categories:
- Security: 12 variables
- Fees: 8 variables
- Cryptocurrencies & Features: 21 variables
- User Experience: 5 variables
- Deposit & Withdrawals: 6 variables
While every investor has different needs, the common criteria everyone should look for will fall under these categories. You want robust security, low fees, high liquidity, ease of use, and convenient deposit and withdrawal methods. Let's look at the specifics of each category.
1. Security
Shockingly, between 2011 and 2020, approximately $15.6 billion was stolen from crypto exchanges. However, crypto exchange hacks aren't the only concern. Other potential risks include bank runs, account freezes and bankruptcies, all of which can cause a loss of funds.
When looking for a secure crypto exchange, it's important to consider multiple variables instead of any singular aspect. You should assess everything from their track record to their account security features to the overall company security protocol. The more boxes they check off, the better. Here are 12 variables to help you evaluate a platform's security:
- Account Security Features: The platform should offer features like two-factor authentication (2FA), address whitelisting, email notifications, and view account login history.
- Hacks and Incidents: Research the exchange's history to see if it has ever been hacked and how it responded to the incident. Keep in mind that being hacked once does not necessarily mean the platform is illegitimate. Some exchanges, like Binance and KuCoin, have reimbursed their users in the past. It's important to look at how they handled the situation and if they took measures to prevent it from happening again.
- Overall Reputation: This can include factors like online reviews, media coverage, data leaks, and the platform's history of security incidents. For instance, repeated hacks and data leaks over the years would be a red flag.
- Year Founded: Generally, the longer a platform has been in operation, the safer it is. Kraken, for instance, was founded in 2011 and Coinbase was founded in 2012. Both have a long track record of serving clients without any major security breaches and are considered some of the safest crypto exchanges in the world.
- Crypto Withdrawals: Some platforms only allow buying and selling digital assets and do not allow crypto withdrawals. Ensure that the exchange you choose has no restrictions or withdrawal limits for the coins you want to trade.
- Insurance Funds: Many platforms now have insurance that help protect the exchange in case of a hack. Note, this typically doesn't cover against your personal account getting hacked. For example, Binance has their own SAFU (Secure Asset Fund for Users) and Bitgo maintains $250M of insurance. While an insurance fund is helpful, it's vital to check if the insurance amount covers the amount of assets held.
- Crypto Storage and Custodians: Storing assets offline and using multisig features is a common practice to ensure security. With multisig, multiple keys are required to access the funds, preventing a single individual, such as the CEO, from running away with the funds. Many crypto exchanges also use custodians like Bitgo or Coinbase Custody, which would be important to research as well.
- Regulatory Compliance: Check if the exchange is licensed in the jurisdiction it operates and if it complies with the regulations of that region. For example, exchanges operating in the US must comply with federal and state regulations, such as registering with FinCEN and obtaining money transmitter licenses.
- Headquarters: Every country has different regulations and legal consequences, so it's important to know where a platform is based. For example, founders are less likely to do illegal activities in the USA versus a small island offshore.
- Proof Of Reserves: This is a way to verify that the platform holds a 1:1 backing of all its user deposits. While it's not always a foolproof system, it shows a commitment to transparency and can help to prevent situations where a platform is unable to cover all user deposits.
- Publicly Traded: Public companies are required to comply with strict regulations and undergo regular financial audits, providing a greater level of transparency and accountability. Some public crypto exchanges include Coinbase in the US and Netcoins in Canada.
- Team and Transparency: Are their executives public-facing or anonymous? Do they communicate their security protocols clearly, or is it difficult to find information? Do they have a real business address? Knowing the answers to these questions can help identify potential red flags.
While there is a lot of things to look for when it comes to security, it's important to do your research to ensure your funds are safe. With that being said, you should not hold large balances on exchanges either. No matter how safe a platform appears, you should only use it for trading and store the majority of your funds in a crypto wallet.
2. Fees
The next big category to look at is fees, which vary widely from each exchange. Fees can be hard to compare, because some platforms lack transparency and make information hard to find. Furthermore, many platforms advertise "commission-free trading" and "no trading fees" which can be very misleading. Often times, those are the most expensive platforms because they hide their fees in the spread.
All of this causes you to pay more money than required, eating into your returns. Other sneaky fees to watch out for are the crypto withdrawal fees, fiat withdrawal fees, and credit card fees. If you want to get the best rates when trading crypto make sure you understand these fee types:
- Trading Spread: The spread is the difference you can buy and sell a cryptocurrency for. The gap in the middle, is where lots of crypto brokers generate profits. The spread is often the most significant fee and the hardest to see, causing investors to overpay a lot. If a platform advertises "zero fees" or "commission-free trades" they are likely making money through the spread and it's usually a lot more expensive than you think. Spreads can vary widely, ranging from as low as 0.00% to as high as 5% or much more for low-cap altcoins. Typically, spreads fall within the range of 1% to 3%, but they are always fluctuating, making calculations difficult.
- Trading Volume: Higher trading volume indicates better liquidity, which is essential for executing trades quickly and at favorable prices. Platform with high trading volume means you get better rates and minimize the impact of the spread mentioned above. For instance, Binance is the largest exchange in the world by trading volume, enabling them to provide some of the best rates in the industry.
- Trading Fees: These come in various forms, such as commission-free, fixed rate, or a maker/taker model. Anything above 0.20% trading fees could be considered high. Binance, for instance, is one the cheapest platforms in the world and charges a 0.10% trading fee.
- Trading Discounts: There are multiple types of trading discounts that you can look out for. This can be referral links, such as Binance who offers a lifetime 10% discount. Additionally, many platforms use a tiered trading fee system based on your 30-day trading volume. Lastly, platforms like KuCoin and OKX have native utility tokens (KCS and OKB) where token holders get discounts and other incentives.
- Fiat Deposits and Withdrawals: While many platforms offer free fiat deposit and withdrawals, watch out for ones that charge 1% to 2% or higher. Lots of them only charge on the withdrawal side which you won't notice until you're cashing out.
- Crypto Withdrawal Fees: Check how the platform handles their crypto withdrawal fees. Some charge a fixed amount, which could be marked up, while others use a dynamic network fee that matches the actual rates. Some platforms like Shakepay in Canada, generously cover the entire withdrawal fee for Bitcoin and Ethereum.
- Multi-Chain Withdrawals: You should also check if they support multi-chain withdrawals which helps you reduce fees even more by transferring coins on different networks. For example, you can save around $20-$30 by transferring USDT on Arbitrum or BNB Chain instead of Ethereum.
- Staking Fees: While some platforms offer the convenience of staking, they might charge a commission on staking rewards. For instance, Coinbase takes a 15%-25% cut, whereas Kraken imposes no fees. This discrepancy can have a big impact on your earnings.
- Credit Card Buys: Many exchanges offer instant crypto purchases through debit and credit cards. However, this convenience is often very expensive because it involves transaction fees, foreign exchange fees, and additional third-party charges.
- Other Fees: Other fees could be around features that weren't mentioned above. Things like peer-to-peer (P2P) trading fees, margin trading, futures trading, and more. Be sure to review the fee structure for the areas of the platform you will be using.
3. Cryptocurrencies and Features
Third on our list is all the functionality and services that the platform offers. While some platforms only focus on the buying and selling of Bitcoin or large-cap altcoins, others have dozens of services like trading bots, NFT marketplaces, crypto reward cards, and more.
Understanding which features you will use is important as the services differ widely on every crypto exchange. You also have to check if it's available in your jurisdiction. For instance, derivatives trading is often banned for Canadians. It's common to use multiple crypto exchanges for this reason.
Overall, some of the most common considerations to look for include the altcoin selection, beginner trading tools, advanced trading tools, account types (spot trading, margin trading, etc), and mobile app availability. Here are 21 different features we've seen crypto exchanges offer:
- Cryptocurrency Selection: Consider the cryptocurrencies you want to trade and if the platform has enough liquidity for you to get good rates. Higher liquidity ensures easier buying and selling and minimizes slippage. The platform should also regularly list new coins throughout the year.
- Trading Features: Assess the trading tools that are offered. Whether you need something beginner friendly or something more professional, you can usually see what the platform has to offer before signing up. Look at the charting tools, order types (limit orders, stop-limits, etc), and so on.
- Account Types: The main account types include spot trading, futures, margin, copy trading, and trading bots. Note that each service will have its own fees and trading pairs and each account has its own unique characteristics based on your trading strategy or investing strategy. Spot trading is for immediate 1:1 trades, futures for speculation on future price movements, margin trading for borrowing funds to amplify your position, copy trading to mimic the trades of successful traders, and trading bots for automated strategies.
- Copy Trading: A feature where you can mimic the trades of successful traders. In theory, beginner investors can achieve better trading outcomes, all with the ease and convenience of automation.
- Trading Bots: Trading bots are automated programs that execute trades based on predefined strategies and parameters. They come in different forms such as simple bots for dollar-cost averaging and more sophisticated kinds like grid trading bots and more.
- Recurring Buys: Recurring purchases allow you to set up automatic purchases at regular intervals, helping you dollar-cost average into the market. Some platforms go as far to offer customizable portfolios, as well as auto-rebalancing.
- Staking: Staking is the process of validating transactions and contributing to a blockchains security in exchange for rewards. Numerous crypto exchanges offer staking, making it easy for beginners to participate. However, like mentioned in the fees section, some platforms like Kraken offer free staking services, while others like Coinbase apply a fee.
- Learn to Earn: Some platforms like Coinbase and Binance offer mini-quizzes where you can earn free crypto for learning about new Web3 and crypto projects.
- Crypto Reward Cards: There are a variety or prepaid Visa and Mastercards where you can spend crypto or fiat in order to earn Bitcoin and crypto cashback. If you want to earn crypto as a form of cashback instead of traditional airmiles or loyalty points, you can learn about the Coinbase Card, Binance Card, Fold App, Shakepay Card, and many other choices. Most of them are free and have other great perks as well.
- Other Rewards: There are many other reward types such as interest accounts, lending and borrowing, trading competitions, trade to earn rewards, liquidity farming, and more.
- Mobile & Desktop App: If you prefer to trade on-the-go, check if the platform offers a mobile app and don't forget to read the reviews. Just because they have an app, doesn't mean it works well.
- NFT Marketplace: Coinbase, Binance, KuCoin, Crypto.com, and many top platforms have released their own NFT marketplaces where you can buy and sell digital art.
- Fractional NFTs: KuCoin, for example, lets you enjoy fractional ownership of Bored Apes and other blue-chip NFT projects that are traditionally unavailable to small investors. This allows you to speculate on the price of expensive NFTs with any budget.
- Affiliate Program: Most exchanges offer an affiliate program where you can earn rewards for referring friends and new users to the platform.
- OTC Desk: Over-the-counter (OTC) desks are for large-volume trades which cater to institutional investors or high-net-worth individuals.
- Crypto Loans: Crypto lending services allow you to secure a loan in exchange for putting up crypto assets as collateral.
- Token Launchpad: Token launchpads allow you to invest in new and promising coins during its early stages.
- Paper Trading: Paper trading or demo accounts allow you to practice and test the platform's functionalities without using real funds.
- Traditional Financial Services: If you choose a retail brokerage like Robinhood, you will have stocks, ETFs, crypto, and possibly banking services all under one roof.
- Native Utility Token: A native token like Binance's BNB or KuCoin's KCS token can offer reduced trading fees, increased interest rates for rewards, among other incentives for token holders.
4. User Experience
If you want to have a enjoyable platform where you can make trades reliably, a good user experience is important. While most platforms have a great mobile app, responsive customer support, and simple interface, some platforms struggle in this area.
Things you want to look for include the account opening process, customer support, platform uptime, and more. Remember, preferences vary among traders, so prioritize the factors that align with your specific needs. By considering these user experience elements, you can select a crypto exchange that offers a smooth and enjoyable trading environment.
- User Interface: A user-friendly and intuitive interface makes navigation and trading hassle-free. Look for exchanges that provide a clean and well-organized layout, easy-to-understand charts and graphs, and clear instructions for executing trades. Plus, a mobile and desktop experience.
- Account Verification: Consider the ease and speed of the account verification process. Some exchanges have lengthy and complex verification procedures, which can delay your ability to start trading. Is it easy to open an account? Do they have very intrusive KYC or regular KYC? Does it take weeks to get verified or is verification automatic?
- Online Reviews: The online reviews on Reddit, Trust Pilot and the App Store are good places to see what real users are saying. Here you can find red flags such as deposits not showing up, inability to withdrawal, and other important issues.
- Customer Service: Determine if the exchange offers multiple channels of customer support, such as live chat, email, or phone, and check their reputation for timely and helpful assistance. Perhaps you want a platform with 24/7 support via live chat or maybe you want to speak with someone on phone. This varies by platform. Some are notorious for bad customer service, especially during a bull run.
- Availability in Your Region: Ensure that the exchange operates in your country or region and complies with local regulations. Some exchanges have restricted access in certain jurisdictions, so verify that the platform is available in your location before signing up.
- Educational Resources: Beginner-friendly exchanges often provide educational resources such as articles, tutorials, and guides to help users understand cryptocurrency trading concepts and enhance their knowledge.
5. Deposit and Withdrawal Methods
Look for hassle-free deposit and withdrawal methods so you can quickly transfer funds between your bank account and the crypto exchange. You'll want a platform that offers a range of options that's both easy and reliable to use. You can consider the following factors:
- Payment & Withdrawal Methods: Look for convenient and reliable ways to deposit and cash out crypto from your bank account. Every country is different so make sure to check the options available for your fiat currency and region.
- Fiat Wallet & Trading Pairs: Check if the platform has a broad selection of trading pairs in your local currency (BTC/USD, ETH/USD, etc). Also, check if you can hold the fiat currency as a balance in your account. This allows for seamless exchanges between crypto and fiat at the lowest rates.
- Speed & Fees: Some platforms offer instant deposits and withdrawals with zero fees, while others have longer processing times and higher fees.
- Transaction Limits: Most platforms have certain limits on deposits and withdrawals for a 24 hour period and it's usually a tiered system based on user verification levels.. Check if the limits align with your intended trading volume and withdrawal requirements.
- User Reviews: Pay attention to any reported issues or delays that users have encountered when depositing or withdrawing funds, as this can impact your overall experience.
Other Tips For Choosing A Crypto Exchange
- Use Multiple Exchanges: In cryptocurrency, it's normal to use multiple platforms for specific features. A common set up is to have one altcoin exchange and one fiat on/off ramp for buying and cashing out to your bank account.
- Don't Stay Loyal To Any Platform: The industry changes fast. Your favorite platform could sharply increase its fees or something better might come along. Be ready to abandon platforms for whatever reason.
- Learn The Different Types Of Crypto Exchanges: There are many different types of crypto exchanges like non-custodial exchanges, P2P exchanges, decentralized exchanges, and more. Understanding the differences will help you choose the best one for your needs.
- Avoid Buying Crypto With Credit Cards: This often has huge fees so you should avoid it every time if able.
- Don't Store Large Amounts On An Exchange: Only use crypto exchanges for trading and hold the majority of your assets in a self-custody wallet, preferably a hardware wallet like the Trezor or Keystone Pro.
- Use Our Free Comparison Tool: At RankFi, we've done the hard work for you and compared dozens of crypto exchanges using the criteria above. We have free comparison tools for global crypto exchanges and Canada.
