Cryptocurrency Brokers vs Exchanges – How do They Differ?

Beginner’s Guide / 03.01.2020

In today’s day and age of digital growth and technological advancements, almost everyone has heard of Bitcoin. From being obscure in 2010 to be an asset of great value as of 2020, cryptocurrencies as a whole and blockchain technology have come a long way. To put it into perspective, blockchain technology was once thought not to last the trial time presents. Not only has blockchain technology proven its detractors wrong, but it has found its place in several sectors of business, including travel, medicine, and energy, among others.

If you are looking forward to investing in cryptocurrencies, you must perform your due diligence beforehand. There are two trade modes with a broker or an exchange for trading in cryptocurrencies. What are the basic things you must know when trading over an exchange or a broker? Which platform of trade is better suited to you? We will explore this and much more.

What is an Exchange? Is it good for Trading Cryptocurrencies?

A cryptocurrency exchange is a platform that allows you to exchange fiat currencies, or cryptocurrencies, for cryptocurrencies of your choice. Some several buyers and sellers place orders at the same time. A buyer can choose to buy an asset at any price if the seller agrees on the transaction fee.

You must first register on an Exchange, upload necessary identity proof, after which you can start trading on the platform of your choice. Here comes the tricky part – Depositing fiat money to cryptocurrency exchanges is often a problem and is not as straightforward as it may seem. While popular exchanges like Coinbase and Kraken do allow the same, exchanges like Binance do not allow popular fiat currencies deposits of USD, or EUR, among others.

Instead, it would be best if you use cryptocurrencies. While there are several ways to buy cryptocurrencies, they are paired with commissions and high fees. This proves to be quite the problem if you need to partake in multiple transactions while making a deposit. You must keep in mind that you will have to pay a fee for the same, each time you make a deposit. This leads to a huge loss of a lot of money.

That being said, Exchanges offer many more cryptocurrencies to trade in when compared to a broker. All you have to do is select the desired trading instrument, open your trade, and watch the price chart. You can place, buy, and sell orders and stop-limit orders as well. You can choose from a wider selection of cryptocurrencies to trade-in. For example, Binance offers over 100 cryptocurrencies for trading. This gives you a diverse selection platter and gives you several options to choose from.

Withdrawals in the form of fiat currencies may present an issue when it comes to exchanging. While you can withdraw money into e-wallets, other online exchanges, or other wallets, this too involves commission fees. Withdrawing to bank accounts may present an issue, as not all banks accept transferred money from cryptocurrency exchanges.

Security is another issue when it comes to exchanges. Yes, exchanges offer 2-factor authentication, and you can do your bit by creating a strong password, but these do not guarantee 100% safety of stored funds. Each exchange comes with a different security level, and you cannot accurately predict what may happen in the future. There have been cases of hackers stealing large sums of money and cryptocurrency owners performing fraud on their clients and trying to get away with their money.

As a whole, the features of cryptocurrency exchanges are somewhat limited compared to those offered by broker platforms.

What is a Broker? How is it Different from an Exchange?

Broker platforms involve trading via a dealer network. An organization sets the fee and price they are willing to sell an asset for, and the broker either keep hold of the funds or works with other brokers to maintain the supply cycle. As opposed to exchanges, depositing funds with a broker is much easier.

The client of a broker has many ways to make a deposit, including popular e-wallets, credit cards, and debit cards, among others. You can deposit USD, EUR, and at times other currencies as well. This makes the whole process of depositing funds a whole lot easier. What’s more, no deposit fees are charged.

Regulated cryptocurrency brokers come with a regulated guarantee and a degree of safety. If a reliable authority regulates a broker, it ensures the fact that it is not a scam. A regulated business is audited strictly, and clients have the right to file a complaint when a broker has breached rules.

Most crypto brokers are members of investor compensation schemes, like the Financial Services Compensation Scheme (FSCS), the objective of which is to secure the claims of clients against brokerage platforms, which are unable to suffice to obligations due to bankruptcy or financial circumstances. Unlike exchanges, broker platforms store money in bank accounts.

When it comes to withdrawals, broker terms usually dictate a fee much lesser than exchanges. For example, Binance charges a withdrawal fee of 0.0005 BTC when withdrawing Bitcoin, while popular crypto brokers platforms like Plus500, IQ Option, or IG charge no withdrawal fee whatsoever. That being said, other forex platforms may or may not charge withdrawal fees. The withdrawal fee charger by a broker depends on your withdrawal method.

While the number of cryptocurrencies offered on a broker platform may be lesser than that on an exchange, what is fascinating is that broker platforms offer an extensive set of features that can help you chalk out strategies and risks. You can use technical analysis tools, indicator sets, and additional chart indications, among other features. Some broker platforms offer tight spreads – When it comes to spreads in the cryptocurrency market, they may reach a hundred dollars.

Conclusion on the main differences between crypto brokers and exchanges

Exchanges and broker platforms come with their sets of pros and cons, yet broker platforms seem to outweigh the perks offered by exchanges. Exchanges offer a wider range of cryptocurrencies to choose from, while broker platforms come with lesser fees and more security. In the end, what matters is your preferred choice of operation. Crypto exchanges are primarily for long-term hodlers, while crypto brokers are more suitable for day traders or swing traders.

avatar
Born in Bucharest, Marius is the founder of Crypto Adventure. Since his first contact with Bitcoin and cryptocurrencies, he never stopped believing that they are one of the most important innovations of our time, which will forever change the way business is done.