January 31, 2020更新 May 28, 2021
As it’s still a relatively new industry, some people may not be aware that there are two ways of trading cryptocurrencies. You can do this via an exchange or using a cryptocurrency broker, both of which have a few differences. In the following, we will look at the differences to help you gain a better understanding on whether it is better to trade via an exchange or with a cryptocurrency broker.
Cryptocurrency Exchanges vs Cryptocurrency Brokers
A cryptocurrency exchange works similarly to a stock exchange, whereby buyers and sellers trade based on the current market price of the cryptocurrency. Typically, an exchange acts as the middle-man and charges a transaction fee. Some clients use a bitcoin exchange for exchanging fiat currencies for bitcoin for example, whereas others simply exchange between different cryptos. Cryptocurrency exchanges are a common choice amongst average crypto traders, but they are less feasible for larger amounts. These higher volume trades are where cryptocurrency brokers may seem to be a preferable option.
With a cryptocurrency brokerage, client funds are traded via a dealer network rather than a centralised exchange, known as an OTC (over the counter) market. These brokers locate sellers or buyers who hold large pools of crypto and bring them together for the sale. It is usually a more flexible and convenient process, with a settlement period which is normally faster than an exchange.
So how do the two compare? In order to make comparisons, we can look at aspects common to both a cryptocurrency broker and any typical cryptocurrency exchange solution including signing up and verification, deposits and withdrawals, trading and safety and security.
Sign up and Verification
Signing up to a cryptocurrency exchange is fairly straightforward and usually involves providing and confirming an email address and creating a password. After signing up, you will have to go through a verification process to enable you to deposit and withdraw funds from your account, although there are a few instances where you are not required to get verified once you’ve signed up. Exchanges tend to respond to verification requests from a few hours to several days.
Signing up with a cryptocurrency broker is also quite simple, but to deposit funds and start trading, account verification will be compulsory, often with different requirements for different jurisdictions. Verification is a quicker process than on an exchange and can be done in just 30 minutes or sometimes even without immediate verification. Once an account has been verified and a trading account opened, it is easy to deposit funds and start trading.
Deposits and Withdrawals
Depositing fiat money to cryptocurrency exchanges can be onerous and is not always possible without buying crypto first. These transactions are often accompanied with high fees and commissions. Withdrawing funds from an exchange in fiat currencies can also be time-consuming. You can use e-wallets and online exchanges, but this involves commissions. The withdrawal of funds into a bank account can also be a concern as some banks refuse to accept funds from crypto exchanges due to the origin of the money and related transactions.
Depositing with a cryptocurrency broker is much easier. Clients are usually offered many ways to make a deposit, including debit/credit cards, e-wallets, etc. Clients are also able to deposit USD, EUR, and increasingly other currencies, making the whole process simple. Brokers fees for withdrawals are also much more attractive than those of a crypto exchange.
To trade on a cryptocurrency exchange all you need to do is choose your trading instrument, open a trade and watch the price chart. You can place buy and sell orders and stop limit orders but crypto exchange features are still somewhat limited when compared to those of cryptocurrency brokers’ trading platforms.
With a cryptocurrency broker platform, there are an extensive range of features such as technical analysis tools and other extensions on offer that will help you with your strategies and risks more precisely. Another positive aspect with brokers are the tight spreads they usually offer. For this reason, they are popular with those interested in cryptocurrency margin trading although it’s fair to say a cryptocurrency exchange leverage can also be worth considering.
Safety & Security
Crypto exchanges have been known to be relatively unsafe with hacking incidents frequently reported in the media. Cryptocurrency trading presents a lot more risk than other types of trading, partly due to the lack of regulation and is thus very vulnerable.
Trading cryptocurrencies with a regulated broker provides some degree of safety to clients in the sense that if a broker is regulated with a reputable authority, e.g. CySEC, it means the company is not a scam. A regulated broker’s business is also strictly audited, and the client has the option to file a complaint if the broker breaches the rules. Regulated brokers are also members of investor compensation schemes which seek to secure clients’ claims against brokers who are unable to meet their obligations due to financial circumstances or bankruptcy. Finally, brokers keep their clients’ money in bank accounts, which works as an additional guarantee.
Which should you use?
There are no right or wrong answers regarding which is better, but where larger trades are concerned, an OTC desk will probably provide more attractive prices for all parties to the transaction. What you should remember is that as highly volatile assets, cryptocurrencies can bring both quick profits and quick losses. It is important to thoroughly research the companies or exchanges you intend to use when trading cryptocurrencies. Cryptocurrency brokers and exchange trading both have benefits and drawbacks, hence your final decision will depend on your goals and individual preference.