In cryptocurrency trading, choosing the right exchange is as important as having the right techniques. The world is gradually warming up to the idea of decentralized finance (DEfi) and one of the areas of interest you must take into consideration is the right exchange to use for trading your cryptocurrency.
What is DEfi?
DEfi (Decentralized finance) is a term used to describe financial services that have no central authority. The present financial system is centralized and subject to the central control of a particular authority or group of people.
What is a cryptocurrency exchange?
Cryptocurrency exchanges are platforms where you can buy or sell cryptocurrencies or exchange cryptocurrencies for other traditional currencies (FIAT). Cryptocurrency exchange is to decentralized finance (DEfi) what banks are to the traditional finance world.
Types of cryptocurrency exchange
Centralized exchange: Centralized exchange serves as intermediaries such as companies and acts as the middleman in order to facilitate trading on their platforms. Examples of centralized exchanges are Coinbase, FTX, and Binance.
Decentralized exchange: Decentralized exchange does not require an intermediary before carrying out its transaction. They enable users to carry out peer-to-peer transactions.
You cannot facilitate the exchange of FIAT currency on decentralized platforms. Examples of decentralized platforms are Pancakeswap, Uniswap, and Tokenlon.
Factors to consider when choosing a cryptocurrency exchange
Reputation: One of the best ways to find out about an exchange is via social listening. Search through the reviews on Google app, play store, and what the users are saying about the exchange. A negative review of an exchange is a red flag. It is important to use at least 3 platforms to judge, as competitors can sometimes pay to leave a negative review on an Exchange. There are various Cryptocurrency forums like Bitcoin Talk, Reddit, and Quora where conversations are happening and you can make your decision based on what customers are saying.
Geographical restriction: Using an exchange that is supported in your region is one thing to look out for when using an exchange. Despite the decentralized nature of cryptocurrency, some centralized cryptocurrency exchanges are not supported in certain countries due to regulation issues.
Fees: Most exchanges should have fees related information on their websites. Before registering on an exchange ensure you understand, transaction, withdrawal, and deposit fees. Fees can differ depending on the exchange used.
Payment method: it is not advisable to use an exchange with a limited payment method. You have to do your research on the type of payment method supported by the exchange you are planning to use. Remember that purchasing cryptocurrencies with a credit card require you to verify your identity, which comes with a higher risk of fraud, higher transaction, and processing fees.
Verification requirements: It is important to note if an exchange requires verification or not. Most centralized exchanges won’t allow you to remain anonymous. They’ll require a means of identification to prevent fraudulent activities on their platform. Some exchanges that operate geographical-wise won’t allow ID from other regions.
Due diligence is the core of succeeding in cryptocurrency. Exchanges are important to safe-guard your money. Most decisions as regards buying, selling, trading will take place in exchanges. Knowing the tips to spot the right one is important.
Written By Adeyemi Boboye