A few years ago, there were less than ten crypto exchanges trading Bitcoin; now, there are more than 300 with hundreds more in the pipeline. So why is the newness of exchanges such a big deal? It’s simple; it’s easier for problems to arise when an exchange is brand new.
Hence, finding a crypto exchange can be a challenge. There’s so much to look at, including security, customer support, fees, and limits. That leaves more room for mistakes. Here are some of the most common errors you can avoid to save yourself from losing out on hard-earned money.
Choosing a New Crypto Exchange
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Crypto fraudsters target new exchanges because they are inexperienced and don’t have the proper security protocols in place yet. They tend to have poor IT infrastructure, small customer support teams who can barely respond to tech problems, strict onboarding processes, and a lack of transparency on how their platform works.
You might be surprised to know that there are over 100 new crypto exchanges released monthly. About 60% of them get hacked within 12 months.
Not Verifying If the Exchange Is Allowed In Your Country
Bitcoin/ cryptocurrencies seem promising as investment and trading assets, but most countries are yet to decide on cryptocurrency policies. Avoid falling into this common trap and ensure you only use exchanges incorporated under your country’s laws. This will allow you to verify if the tokens or coins they support are legal for you to use, as well as giving you access to any customer service support channels should something go wrong.
Not Checking If the Exchange Has a System in Place to Prevent Theft
If you are on a hunt for finding a crypto exchange that you can count on, check if it has a system to prevent theft. In 2018, there were over $500 million in losses from cryptocurrency thefts. Leaving your funds on an exchange without learning if they are safely storing your crypto is like sitting on a ticking time bomb. It could be stolen at any moment, going up in smoke before you’ve even had the chance to withdraw it yourself.
Note: A crypto exchange should be equipped with advanced security features. These features should include AES-256 encryption, 2FA (Two-Factor Authentication), offline cold storage, and more.
Not Choosing a Crypto Trading Exchange That Has Good Customer Rating
If you don’t use a cryptocurrency exchange with good customer ratings, you run the risk of losing your money altogether. One case that made the news was that of bitcoin exchange Mt. Gox being declared bankrupt after it was hacked and a hacker stole $ 460 million worth of bitcoin.
Fortunately, if you have insurance on your cryptocurrency holdings, they will be covered. Only use a secure cryptocurrency exchange trusted by many people in the industry, has good customer ratings, and uses the latest security technology to keep your money safe.
Look For Liquidity on an Exchange
It is reasonably accurate to say that low liquidity exchanges are riskier than high liquidity ones. Why? Because, in a low liquidity exchange, a small investor’s action can have an outsized impact on the price of the coin (in such exchanges, price is easily manipulated and not as independent of humans as in high liquidity exchanges).
And because these markets are fresher and with lower trading volume than their more mature counterparts, they are more susceptible to being “pumped and dumped,” where people who know or influence the exchange operator can push it to great heights when news comes out.
Low liquidity means there’s not much trading process activity happening, so it’ll take longer for your trade to complete.
High liquidity usually means a large number of traders are using the exchange, so there’s more demand and supply for the instrument you’re trading. So the honest advice is to stay away from low liquidity exchanges.
Some More Pro Tips:
- Is the exchange open about who’s behind it? How credible is the team?
- Is there oversight by financial authorities? Are they regularly audited to check everything is on the level?
- Is the user interface intuitive, or will you have to spend hours learning how to use it?
- What types of orders does the exchange offer – market, limit, stop loss, etc.
- What cryptocurrencies are supported, and which fiat currency can you use to deposit funds.
It is crucial to prevent the above screw-ups when selecting a crypto exchange. Keep in mind that different platforms have different methods for developing their network, improving customer experience, maintaining stability, and controlling their users. Overall, it helps to do your homework to gain a thorough understanding of the various exchanges so that you can choose one that is both safe and trusted.