Cryptocurrency exchanges are online platforms for traders to engage in trading activities relating to cryptocurrencies. While there are hundreds of cryptocurrency exchanges, they largely serve the same functions of allowing users to deposit, store and withdraw Fiat and cryptocurrencies on an exchange wallet, purchase cryptocurrencies and trade either cryptocurrency Pairs or Fiat to Crypto pairs for the more established cryptocurrencies.
While cryptocurrency exchanges are largely similar, they differentiate themselves by their daily transaction volumes and liquidity, security, number of trading pairs available and most importantly, the services available to the users. For instance, larger cryptocurrency exchanges such as Binance provide various services for users such as trading cryptocurrency Contracts For Difference (CFDs) and Options, Soft Staking where users are given interest for their cryptocurrency held on their exchange accounts, and even Insurance to protect the assets of users.
Generally speaking, crypto exchanges have lower transaction fees and different operational timings from traditional stock exchanges. The lower transaction fees for crypto exchanges are attributed to the minuscule costs associated with blockchain-based transactions compared to the taxes, processing, and broker charges associated with stock exchanges. The second key difference between Stock exchanges and crypto exchanges is the difference in operational hours. Stock exchanges typically operate during the trading hours of the country that it is located in. On the other hand, crypto exchanges operate 24/7 due to the fact that the crypto market never sleeps and opens 24/7/365.
Due to the fact that the cryptocurrency market is less mature than the equities, foreign exchange, and commodities market, there exist significant opportunities to engage in arbitrage by buying and selling cryptocurrencies on different exchanges that quote different prices at any one point of time. While the cryptocurrency market may still be considered to be in a nascent state with insufficient regulations in place to protect investors, this may no longer be the case in the near future with global regulatory bodies calling for stricter KYC processes, AML and ATF regulations for crypto exchanges to adhere to.
As such, it is important for investors to only use crypto exchanges that have strong security and risk management measures in place and preferably insurance plans in place to protect the value of their assets similar to stock exchanges. Such exchanges include the aforementioned Binance Exchange and Huobi Exchange.
If you still remain unsure about entering the Cryptocurrency trading space, CryptoHero has a paper trading function to allow users to experience simulated Cryptocurrency trading.