How to use exchanges (A Step-by-Step Guide)

If you want to buy, sell, or trade cryptocurrency, (especially if you’re a newbie) your first question is probably “What exchange should I join?”

But with tons of exchanges to choose from, the choice can be daunting.

How does each exchange differ? What are the pros and cons of each one? What about fees? Do any exchanges have a bad reputation?

Aside from that, you’re probably wondering how exchanges generally work, anyway. What are the basics?

Here’s a step-by-step guide on what to look for when choosing an exchange, along with information about how to use five different exchanges.

What Are Cryptocurrency Exchanges?

Cryptocurrency exchanges are websites where users can buy, sell, or trade coins for other digital currency.

Users can also exchange cryptocurrency for traditional currency, like U.S. Dollars or Euros.

The type of exchange that you’ll choose will depend on your overall goals.

If you’re looking to trade professionally or want to use an exchange with tons of trading tools, you’ll probably have to verify your ID to even open an account.

If you just want to make occasional, basic trades, there also platforms out there that don’t require an account.

For example, you can sell Bitcoins and purchase U.S. dollars with the sold coins, or you could exchange Bitcoins for Ethereum.

You can’t buy certain altcoins with traditional currency, so exchanging one coin for another is sometimes the only method of purchase available.

Private exchanges operate by invite only and are highly exclusive. On the other hand, public exchanges can be accessed by anyone.

Local exchanges are also available.

Some of them are easier to use than others, and certain exchanges are so simple that coins can be sent through chat features on the platform, like Bitwala.

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Here’s a quick breakdown of the different types of exchanges.

Trading platforms are websites that connect buyers and sellers while taking a fee for each transaction.

Direct trading platforms offer direct trading from person to person.

Users from different countries can also exchange currency here, and there’s no fixed market price. Each seller sets their own desired rate of exchange.

Broker platforms are websites where anyone can buy cryptocurrencies based on prices set by a broker.

When researching an exchange, there are many factors to consider. Here’s what you should take a look at for every exchange you’re considering using.

What to Consider When Choosing A Cryptocurrency Exchange

Before you pick the exchange that is best suited for you and your trading goals, you need to think about the following factors.

Fees: Nearly every exchange charges fees for using their platform to buy, sell, or trade.

When you sign up for a specific exchange, be sure that you understand the breakdown of its fees so there are no surprises.

Bittrex has the lowest percentage of fees per trade.

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Security and verification requirements: These are important to understand before you start the sign-up process on an exchange.

The majority of exchanges require an identity verification to begin using the platform.

Usually, this means that you might have to provide your passport, driver’s license, or proof of residence before you can join.

While this can be a complicated and inconvenient process, it provides security for the exchange. The longer the verification process, the safer the exchange probably is.

It’s also important to note that your verification status can sometimes affect your daily withdrawal limit.

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Exchange rates: You wouldn’t want to join an exchange that charges huge fees for transactions. Especially for coins that don’t have a ton of worth just yet.

Reputation: What’s the general opinion on an exchange? If an exchange has a sketchy past, you might want to reconsider your choice.

The best exchanges go through many ups and downs, but the best ones are well trusted.

Region: It’s important to double check that an exchange supports your geographic region.

Some exchanges might support all of the countries in Asia but not support any of the countries in Australia, for example.

Be sure to pick an exchange that supports your location.

Now, let’s take a look at some of the best cryptocurrency exchanges out there, starting with Coinbase.

1. Coinbase: The Best Exchange For Newbies

Coinbase is easily the largest cryptocurrency exchange in the world.

With over 10 million registered users and $20 billion in trading volume, this exchange is a powerhouse.

With Coinbase, you can buy, sell, or trade Ethereum, Litecoin, Bitcoin, and Bitcoin Cash.

It has been rumored that Ripple will become available on the platform, but the company hasn’t made a decision about adding the coin just yet.

Coinbase offers an active trader platform, called GDAX, to users. The platform is stacked with analytics and features for every kind of cryptocurrency trader.

It’s easy to set up an account and buy your first coins on Coinbase.

The exchange is also one of the few that allows users to buy coins with U.S. dollars.

To begin setting up an account, click the “sign up” button on the upper-right hand corner of the site’s homepage.

Once you fill out the requested information and agree with the company’s user agreement, click on the “Create Account” button.

From there, you’ll have to verify your email and select your account type. Pick “Individual Account” unless you plan to own your coins within a business.

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Next, you will be asked to give Coinbase your phone number to verify your account.

This is a two-step authentication process designed to keep your account safe. The company will send a code to your phone that you will need to enter to verify your account.

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This is an added layer or protection that keeps unwanted users out of your account.

You may be asked to confirm you identify by uploading a photo of your ID.

Finally, add a funding method. This can be a bank account or a debit or credit card.

Your payment method will be verified by Coinbase with a small, refunded charge onto your account.

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That’s all you need to make your first order. Select the coin you want to buy, and you’re off!

In the U.S., expect to pay a 1.49% fee on purchases and sales from a bank account or Coinbase U.S.D wallet and a 3.99% fee for credit/debit cards or PayPal accounts.

Next, let’s talk about how to use Binance.

2. Binance: The Best Altcoin Exchange

Binance hasn’t been around as long as Coinbase, but users seem to love it.

It offers a wider range of cryptocurrencies than Coinbase does, as well as basic and advanced view options.

Fees on Binance are pretty reasonable, and the platform allows users to immediately trade without having to verify an account.

Deposits are free, and there’s a 0.1% trading fee.

You can make withdrawals of up to 2 BTC per day. If you want to withdraw a higher amount, you have to upload a “selfie” with your ID.

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To buy and sell, just search for the name of the coin you’re interested in and enter in the amount you want to buy or sell.

You can also set up stop-limits on the site.

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Because of the site’s ease of use and affordable fees, people seem to love it.

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Gemini is another exchange you might want to consider.

3. Gemini: A Regulated Exchange For Advanced Users

Gemini is very similar to Coinbase, but the exchange isn’t available to users in every state.

Only 42 U.S. states, Canada, Hong Kong, Japan, Singapore, South Korea and the UK are eligible to use this exchange.

You can only trade Bitcoin and Ethereum on this exchange. However, the exchange offers FDIC insurance for cash balances, which is very rare.

Not many cryptocurrency sites offer this to users.

There isn’t any available insurance once your cash has been converted into digital currency, though, which is unfortunate.

The platform also has some tricky UX that basic traders may find difficult to use.

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Since Gemini is a fully regulated and licensed U.S. Bitcoin and Ethereum exchange, the standards are similar to that of a bank.

While that offers great peace of mind to users, these regulations are what most cryptocurrency traders are trying to avoid in the first place.

To use, select whether you want to buy, sell, or transfer funds from the top of your Gemini dashboard.

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The site keeps a transfer history for all of your transactions.

Next up is Kraken, an exchange offering many different coins.

4. Kraken: The Most Secure Exchange

Kraken offers a large amount of cryptocurrencies, but the approval process is painstakingly long.

There is a three-plus level process, but each level is more intense than the last.

Getting past levels one and two will allow you to use the exchange, but your amounts may be limited.

To reach the third level of verification, you have to add a photo of yourself holding a handwritten sign with the date and phrase “for trading cryptocurrency on Kraken only.”

This is pretty intense, and kind of laughable, but goes to show just how much Kraken values the security of its users.

There is no funding allowed from U.S. dollars on this exchange.

You must transfer to cryptocurrency from your wallet (or from another exchange) to start making trades on Kraken.

Then, create a new order to buy or sell the coin of your choice.

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Since Kraken is so secure and there are so many coins available on the site to buy, sell, or trade, you may want to consider using this exchange.

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Fees on the exchange are different for each coin but are relatively low.

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If you’d rather use a P2P exchange, check out LocalBitcoins.

5. LocalBitcoins: A P2P Exchange Option

LocalBitcoins allows users to buy and sell Bitcoins to users from around the world.

With this exchange, you can meet up with people in your area and buy and sell coins in cash, via PayPal, Skrill, or Dwolla, or deposit cash at a bank branch.

Getting started is as easy as searching for the location you’re in to view prices.

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When you find a rate and a buyer you like, click “buy” and enter in your desired amount.

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The site only takes a 1% commission from sellers who set their own rate of exchange.

The company takes some precautions to make sure that trading is secure, like rating each trader with a reputation rank.

The site also displays past activities of users publicly.

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Once a trade is requested, the funds are held using LocalBitcoins’ escrow service.

Then, once the seller confirms that the trade is completed, funds are released.

If something goes south, a conflict resolution and support team is available to resolve any issues that users might run into.

No ID is required, and the site is beginner friendly, which is great if you want to make a quick first sale or purchase.

However, it’s hard to buy large amounts of Bitcoin on the site, and if you want to buy a different cryptocurrency, you’re out of luck.

Conclusion

The first step to buying, selling, or trading cryptocurrencies is understanding how to use exchanges and picking the exchange you want to join.

But there are so many out there, which can make your decision a tough one.

First off, you must understand the differences between trading platforms, direct trading platforms, and broker platforms.

When choosing an exchange, you have to consider factors like fees, exchange rates, verification requirements, and more.

Coinbase is the largest exchange in the world, and it has a pretty positive reputation. It’s extremely easy to use. However, fees are pretty high.

Binance is a newer platform that people seem to love. It’s similar to Coinbase but offers a wider range of coins with lower fees.

Gemini isn’t available to users in every state and is heavily regulated since it’s a licensed exchange.

Kraken offers tons of coins with extremely low fees, but the verification process is a lengthy one. Kraken is one of the most secure exchanges out there.

LocalBitcoins isn’t as secure as other exchanges, but it offers P2P trading. If you want to buy or sell altcoins, this may not be the exchange for you, as only Bitcoin is offered.

Do your own research and pick an exchange that meets your trading goals, desired security level, and trading experience.

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