Cryptocurrency Exchange vs Broker: How to Start Each

The existence of cryptocurrencies and the decentralised economy opened many gates for businesses that want to capitalise on the growing tendencies in DeFi, cryptocurrency trading and facilitating peer-to-peer exchanges.

Many service providers emerged based on Bitcoin and other virtual currencies, whether to create crypto trading software, facilitate payment gateways, or store virtual money.

There is money for grabs in cryptocurrency. However, you need to find the right business model that suits you, whether you want to start a crypto exchange platform or operate a brokerage firm to trade crypto coins. Let’s discuss launching a cryptocurrency exchange vs a brokerage firm.

Cryptocurrency Exchange vs Broker: The Difference

Crypto exchanges and brokerages are two business models that capitalise on the growing tendencies in decentralised economies, including cryptocurrencies, dApps and blockchain-based platforms.

Financial corporations and startups are switching to cryptocurrency, or at least adding bits of it, to expand their service package and seize the thriving opportunities in this industry.

As the market surges and prices increase, investors become more willing to engage in buying and storing cryptocurrencies, especially the most growing ones, such as Bitcoin and Ethereum. Thus, launching a service business in this sphere is just the right way to make an income through commission fees, offering brokerage services, trading against market participants, and other business models.

But what is the best way to penetrate this market? What’s the difference between a crypto broker and an exchange? We will cover those concepts in the following.

Understanding Crypto Exchanges

Cryptocurrency exchanges are platforms that facilitate virtual currency swapping, buying and selling between users. It is a common way to get into the crypto market and own your first coins and tokens. 

Crypto exchange software allows traders to use their existing virtual or fiat currencies and exchange them for other digital assets with another user on the same platform.

There is a huge number of users on top crypto exchanges like Binance, Coinbase and Gemini. Therefore, these platforms have significant liquidity and a wide range of crypto assets. Some exchanges support fiat currency, where users can use USD or EUR to buy cryptos and store them in their dedicated wallet.

Benefits of Crypto Exchange Companies

Launching a business as a decentralised exchange platform can be highly lucrative, where you get a cut from every processed exchange between users. In most cases, exchange services incur a percentage of each trade, garnering significant returns when considerable orders are executed.

Recently, users have been increasingly switching to crypto spot exchange platforms, where they can buy and sell different cryptocurrencies at favourable prices, lower costs, and quicker processing times.

DEXes also provide several blockchain-based investments, such as staking, liquidity farming and NFT marketplaces. 

Understanding Crypto Brokers

A cryptocurrency broker acts like any brokerage firm, providing a bridge to financial markets and allowing users to execute orders and make money.

They are usually more complicated than peer-to-peer crypto exchange platforms because they involve licensing from financial authorities, legal compliance, payment systems and trading services.

Moreover, traders on brokerage platforms can utilise a wide range of analysis tools, indicators and charts to make the right investment decision. Investors can also use additional broker services, such as CFD trading, managed PAMM and MAM accounts, and leverage trading.

Benefits of a Crypto Brokerage Firm

Crypto brokerages might seem similar to exchanges, where users can obtain and store cryptocurrencies in their accounts. However, there are a few differences that can be favourable for new crypto entrants who are looking to make gains from investing in decentralised markets.

These platforms offer a more sophisticated system of trading tools, brokerage services and investment solutions. On the other hand, owning your crypto brokerage website is a great way to earn money from the increasing demand for BTC, ETH, and major coins.

As a crypto broker, you offer access to trading markets and connect your platform with liquidity sources to provide the best trading conditions across multiple cryptocurrencies. In return, you get a commission from every executed position, besides other fees from other trading services you may offer.

Crypto Regulatory Landscape

There is a dynamic state when it comes to regulating cryptocurrencies, which change alongside market events and financial reforms. For example, a few countries adopted BTC as a legal ledger, while the US regulators have doubled down on crypto exchange and brokerage firms.

The US Securities and Exchange Commission requires cryptocurrency brokers and exchange platforms to be registered with the national authority, especially when it comes to offering financial securities. 

Additionally, the SEC has been trying to regulate the trading of Bitcoin and other major coins as registered securities that contribute to the economy and manage the huge volatility associated with decentralised assets.

As a result, crypto exchanges and broker-dealers are not registered in the US Federal registry. However, they are strictly observed and can face hefty fines if misconduct occurs. 

How to Launch a Business: Crypto Broker vs Exchange

If you are considering making money as an intermediary in the crypto market, then launching an exchange platform and a brokerage platform must be your top priority. The choice between them depends on the level of regulation and licensing you aim to acquire and the services you want to offer.

Operating a P2P Crypto Exchange Development

A decentralised exchange platform requires sophisticated programming knowledge and expertise to build order-matching software, configure the criteria for executing transactions, and operate on multiple blockchains and networks.

However, you can use the white Label crypto exchange development service, which saves you the time and money required to build from scratch. These turnkey solutions can be optimised to suit your business needs, allowing you to fine-tune your platform as the following:

• Connect your exchange software with liquidity providers and sources that populate your p2p trading platform.
• Set up a matching engine to execute orders by finding a counterparty for every executed transaction.
• Ensure a top-notch security system by supporting reliable blockchains, wallets and the best KYC and AML protocols.

Creating a Crypto Broker Software

On the other hand, a brokerage platform offers a wide range of trading options, such as cash and margin accounts, managed trading strategies, copy trading, and other brokerage services. These operators are strictly observed by central regulators.

Therefore, the first step you need to undertake is to study the legal environment in your country or the jurisdiction of your business. Once you have resolved the legal aspects, here’s how you can start.

• Set up your business plan for the coming years. This step is crucial for licensing in some countries and to attract investing ventures to support your website.
• Adopt a tip-tier security infrastructure, including KYC providers, AML monitoring, and payment system providers. 
• Find reliable liquidity sources to supply your platform with various trading securities, such as prime of primes, which connect your platform with multiple tier-1 investment pools and sources.
• Add a crypto payment gateway to start accepting payments in BTC, ETH, other virtual coins, and fiat money.
• Support a wide range of trading systems, such as copy trading, PAMM and MAM accounts and trading plugins.

Conclusion

Launching a business in the aspect of cryptocurrencies is a smart way to benefit from the growth of these coins and the increasing number of crypto holders and traders. However, most entrepreneurs face the challenge of finding the right business model: cryptocurrency exchange vs broker.

Each platform has pros and cons, which differ based on your objectives. Exchange software is suitable if you aim to offer a means of direct exchange between users to buy and sell cryptos.

However, if you want to operate as a fully-fledged broker-dealer, then a crypto brokerage system is better for capitalising on a wider range of trading options, payment solutions, and profitability strategies to grow and scale your business.