Cryptocurrency exchange functionality: in our previous educational article I talked about different types of cryptocurrency exchanges. Now you're wondering how to choose from the many options available. Although there is no solid answer for this, to begin with, here are five of the 10 ways to scroll through some of the most important features in an exchange to help you make the best decision. To see all ten cryptocurrency exchange features, you can browse through my book Cryptocurrency Investing for Dummies .
Five features of Exchange Cryptocurrency to consider
This is one of the biggest problems in the cryptocurrency industry. Exchanges are at constant risk of hacks, fraud and pump-and-dump schemes. That's why one of the most important things you need to do before choosing your crypto-shop is to do your research.
Word of mouth and online reviews are some of the ways to help you choose a legitimate and secure platform Some of the other security cryptocurrency exchange features that you need to monitor on the exchange include:
- Two-party authentication factors, also known as 2FA, is a method of confirming identity declared using a combination of two different factors: 1) something you know (like your password), and 2) something they have (like a 6 digit number they will send to your phone or email address for the second verification step.)
- Cold storage for most funds – This means funds will be stored offline, so the risk of online hacking is lower . We will explain more in this regard in Chapter 5.
- Reserve test – This requires that the exchange be verified to verify that the total amount of funds held by the exchange matches the amount required to cover an anonymous set of customer balances.
2- Supported cryptocurrencies
There are thousands of different cryptocurrencies that you can invest in more than Bitcoin. We'll talk about it more in chapter 8 of Cryptocurrency Investing for Dummies . Once you have decided which cryptocurrencies are right for you, you need to make sure that their exchange brings them.
3- Exchange functionality liquiditycryptocurrency – Cryptocurrency Investing for Dummies
Without sufficient liquidity, prices and the speed of your transactions could be compromised Once you have decided which cryptocurrencies you want to buy, you must make sure that your exchange offers liquidity and sufficient trading volume to speed up and facilitate your transactions. This also means that you are able to buy and sell without the price of cryptocurrency being significantly affected by the large market movements. The more buyers and sellers there are more liquidity that exists.
The best way to measure the liquidity of an exchange is to look for their most recent trading volume. Coinmarketcap.com and bitcoincharts.com are two of the many cryptocurrency information websites that provide and classify exchanges based on volume and liquidity.
There are several ways in which exchanges are charged to their customers. It would have been nice if they did not. But let's face it, these exchanges are not charitable works. The payment of customer rates is exactly how they make money to stay in business, and therefore one of the main features of the exchange of cryptocurrency to be considered. The most common method of exchange fees is by withdrawing a small percentage of the amount exchanged. Most exchanges charge a percentage less than 1%. To remain competitive, some trades go well beyond the cut in their percentages, at around 0.2%. Often, there is an escalator that decreases the commission rate as the volume of monthly user exchanges increases.
While paying less is always interesting, keep in mind that it is better to give priority to the security and liquidity of commissions. Because your investment will defeat its purpose if you pay almost nothing on the transaction fees, and then lose all your funds in a hacker's attack. For more information on this type of calculation, you can participate in this free MasterClass.
Depending on where you live, you may find a specific exchange that works better for you in your country than another, more popular on an international level. Things like the fiat currency they accept and the rates they apply to local residents compared to those of international customers are some of the things to keep in mind.
In addition, the location of the exchange dictates the laws it will have to comply with. At the time of writing this document, many countries do not have specific rules on cryptocurrencies. However, if and when they start doing so, this could significantly affect your ability to participate in the market through trade in those countries.
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