Cryptocurrency Trading: Exchange vs Brokerage

Nowadays, everyone who knows at least something about finance has heard of cryptocurrencies. In 2017, this industry exploded in popularity, and the crypto market began attracting the attention of more and more traders throughout the world. With extreme volatility and virtually unlimited profit potential, people started going absolutely crazy about it. As a result, a lot of tools, products, and services appeared in the market that opened the door to earning with cryptocurrencies.

There are however two ways of trading cryptocurrencies: over an exchange or with a broker. These two do have some differences, which are not very clear to the general public. The following will look into the basic things a trader has to deal with when trading cryptos over an exchange or on the online broker trading platform. This will help you to finally understand which kind of trading is better: with an exchange or with a broker.

Signing up and Verification

Exchange

In some of the largest crypto exchanges the signup process is closed, but where it’s still available, the process is as simple as registration on other websites. What you need to do is to provide your email, create a password, confirm your email address, and that’s it! You are signed up. After you have signed up you need to go through the verification process in order to enable depositing and withdrawing funds from your account. To get this done, you will have to upload or send your photo ID colored copy and provide a photo of you with your ID near you. The exchanges respond to such verification request within between a few hours and a few days. There are some cases when you don’t have to get verified once signed up. For example, with Binance, one of the most popular crypto exchanges out there, you can deposit to and withdraw from your account right away, although only 2 BTC per 24 hours. With your transactions growing bigger, you will still have to get verified.

Broker

Signing up with a broker is not a very difficult thing either, it is mostly the same as on an exchange. However, in order to deposit funds and start trading, verifying your account is mandatory. As a rule, you will be required to submit scan copies of one or two docs, those being your ID and proof of address. Different requirements can be in place for different jurisdictions. The verification process as such runs quite faster than on an exchange, being complete within just 30 minutes or even without verification (15-days period of verification). After your account has been successfully verified and your trading account open, you can easily deposit funds and start trading.

Deposits and Withdrawals

Exchange

Depositing fiat money to crypto exchanges is often a hassle. As such, you cannot deposit USD or EUR on Binance, and must use cryptocurrencies instead, which means you have to buy some crypto first before that. There are many ways to buy digital currencies out there, but such transactions are often paired with high fees and commissions. If you need to run multiple transactions when making a deposit, you should bear in mind that you will have to pay a fee each and every time; this way, you may lose up to 15% when depositing.

Withdrawing funds from exchanges in fiat currencies is again a piece of hassle. Of course, you can use e-wallets and online exchanges, but this again involves commissions. Withdrawing to a bank account can be an issue, too, as not all banks accept money from crypto exchanges because of the origin of such money and transactions.

Broker

Unlike currency exchanges, depositing with a broker is a breeze. A broker’s client has a large number of ways to make a deposit, including credit cards, popular e-wallets, etc. You can deposit US dollars, euros, and sometimes other currencies. This simplifies the whole process a lot, while, as a rule, there are no deposit fees whatsoever.

As for withdrawals, broker terms are usually still much more attractive than those of a crypto exchange. Instead of paying 5% or 6%, you just have to pay a fee of between 0% and 3%, which depends on your withdrawal method.

Trading

Exchange

Trading on a crypto exchange is not rocket science. You just need to select the desired trading instrument, open your trade and watch the price chart. You can place by and sell orders, as well as stop limit orders. In this aspect, crypto exchange features are somewhat limited compared to those of a broker platform.

One of the advantages of an exchange is that you can choose among a lot of different digital coins to trade. Binance, for instance, offers 120 cryptocurrencies for trading, which gives you a nice set of diversification options when selecting your trading strategy.

Broker

Using a broker platform, you get extensive feature set that will help you to work out your strategies and risks more precisely. As such, you will be able to put additional indications on the chart and use the in-built tech analysis tools. However, the broker platform will not offer you such an impressive number of cryptos to trade as an exchange. Each broker has different cryptocurrency offerings, but, most likely, you will find only the most popular cryptos out there.

Among the absolutely positive things about the brokers are the relatively tight spreads. The spreads in the cryptocurrency market may reach a few hundreds of dollars, but on the trading platforms, you will get the tightest spreads possible. As such, the BTC/USD spread is as low as 0.1 pips in R Trader, which is one of the tightest in the industry.

Another advantage is that the broker platforms have much more features to offer. Unlike the exchanges, you can put multiple charts in your window, track the quote flow, use indicator sets and other extensions, etc.

As such, there is a strategy builder feature in R Trader, which allows creating automatic trading strategies without any coding background. Using strategy builder, you will be able to create trading robots that could drastically raise your performance.

Safety & Security

Exchange

Crypto exchanges are relatively unsafe. You can, of course, create a very strong password and even enable 2-factor authentication, but, unluckily, this cannot guarantee 100% safety of funds. Besides, each crypto exchange security level is different, and one can’t tell what is going to happen going forward. Lately, news on hacking and robbing client funds appear everywhere. This year, in the course, if BitGrail and Coincheck (both very large exchanges) hack the investors lost around $700M. There are even some cases when the crypto exchange owners do frauds and then try to get away with the client money. In this light, crypto trading is overall riskier than other types of trading, as the crypto market is not regulated and, thus, is very vulnerable.

Broker

Trading cryptocurrencies with a regulated broker guarantee some degree of safety to the clients. First, if a broker is regulated with a reliable authority, such as CySEC, FCA, SEC, etc, this means the company is at least not a scam. Second, a regulated broker’s business is strictly audited, and the client has a right to file a complaint whenever the broker is thought to breach the rules. Third, regulated brokers, as a rule, are members of investor compensation schemes, the object of which is to secure claims of clients against brokerage houses that are unable to meet obligations due to financial circumstances or bankruptcy. Finally, unlike exchanges, brokers keep the client money on the bank accounts, which works as an additional guarantee.

In conclusion, one should say that cryptocurrencies are high risk and very volatile assets, which can bring both quick profits and quick losses. When choosing a trading method for cryptos, one should study all pros and cons carefully. You have to understand very well which companies or exchanges you are going to use when trading cryptocurrencies. Both broker and exchange trading have their advantages and disadvantages, so your final decision will depend upon your goals and personal preferences.

This article was written by Dmitriy Gurkovskiy, a Chief Analyst at RoboForex