Crypto caught your interest? Wondering how to choose a crypto exchange? There are a few things to learn, and fast, before you jump in. Firstly, there are different platforms where you can buy and sell digital assets, and their users interact with them in different ways.
You need to grasp the differences between crypto brokers and crypto exchanges, and understand regulatory considerations before you choose a platform.
Choosing the right platform for what you want to do is important.
Cryptocurrency Trading
Cryptocurrency trading involves buying and selling digital assets. These transactions are recorded on a blockchain. Cryptocurrencies can be traded for investment return, held as investments, or used to purchase goods and services.
Comparison: Crypto Broker vs Exchange
What is a cryptocurrency broker?
A crypto broker acts as an intermediary between you and the cryptocurrency market.
Cryptocurrency brokerage platforms often execute trades through third-party exchanges, which can expose users to additional risks. For instance, if an exchange utilised by the brokerage is compromised through a protection breach, or if a government entity freezes the exchange’s assets, the user’s funds could be at risk. This potential for indirect exposure to exchange-related vulnerabilities is an important factor for users to consider when choosing a cryptocurrency brokerage platform.
Cryptocurrency brokerage platforms may present a viable alternative for investors seeking access to a wider range of digital assets than those typically offered by traditional exchanges, particularly for those who prefer not to use decentralised finance (DeFi) protocols. For instance, uk crypto exchange platforms have become increasingly popular among investors seeking exposure to a broader range of cryptocurrencies.
Some examples of crypto brokers include eToro and Revolut.
There are some drawbacks. The first is that these platforms tend to be a bit more expensive as they do the crypto trades using a third-party site. But more importantly, you have no control over which exchanges these brokers are using to do the crypto trading. They could be using offshore exchanges that are not required to adhere to the same standards as crypto exchanges in the UK.
Remember, if a crypto exchange collapses, like in the case of FTX, your funds could go with it, never to be seen again. It is hard to know which exchanges brokers use, and if they could replace funds lost by using dubious exchanges.
What is a cryptocurrency exchange?
So then, what is a crypto exchange? An actual crypto exchange is a marketplace where buyers and sellers come together to trade cryptocurrencies directly.
There are two kinds of crypto exchanges: Centralised (CEX) and decentralised (DEX). A centralised exchange in the UK is ideally registered with the Financial Conduct Authority (FCA). Well-known centralised crypto exchanges include CoinJar and Kraken.
Centralised vs Decentralised
A centralised crypto exchange manages the platform, oversees the transactions, and complies with local regulations. Users trust this intermediary to handle their funds and transactions.
In contrast, a decentralised crypto exchange operates without a central authority. Instead, it uses blockchain technology and smart contracts to facilitate peer-to-peer transactions directly between users. This model emphasises privacy and control over funds, as users retain custody of their assets throughout the trading process.
A DEX can be difficult to navigate for newbies. They tend to have complex interfaces and settings, and users risk making mistakes which can result in the loss of funds. Also, because less people use them, there might not be sufficient liquidity for you to trade without moving the market significantly.
Additionally, these platforms may not be in line with the AML legislation under FCA, in that you are not required to share personal information and transactions are not transparent or monitored.
Popular decentralised exchanges
DEXs operate on a blockchain and are not tied to any specific geographical location. However, crypto enthusiasts in the UK can access and use any DEX operating on a public blockchain.
Two popular DEXs that can be accessed from the UK are:
Uniswap: This is the largest DEX globally and operates on the Ethereum blockchain. It uses a model called Automated Market Maker (AMM), where users trade against liquidity pools instead of a traditional order book.
SushiSwap is a decentralised exchange that operates on multiple blockchains, including Ethereum, Polygon, and others. It uses an Automated Market Maker (AMM) model, similar to Uniswap.
Knowing the Difference Between an Exchange and a Broker
CEO of crypto exchange CoinJar, Asher Tan, says that understanding the difference between a crypto exchange and a broker is crucial for anyone looking to enter the crypto world. “Essentially, a crypto broker platform acts as an intermediary, buying and selling crypto on your behalf at their set prices. Think of them as a bit like a currency exchange at an airport – convenient, but you’re likely paying a premium for that simplicity.”
Says Tan, “A crypto exchange, instead, is a platform where customers can exchange digital assets within the same platform.”
Regulatory Considerations
Cryptocurrency regulations vary significantly from country to country. Before choosing a platform, make sure it complies with the regulations in the UK. Look for platforms that prioritise protection measures like two-factor authentication and cold storage for funds.
Choosing the Right Crypto Platform
FCA Registration: UK crypto exchanges registered with the FCA have stricter regulations, financial crime prevention measures, and access to dispute resolution mechanisms.
Protection: Choose a platform with a strong reputation for protection. Look for features like two-factor authentication, and cold storage.
Fees: Compare the fees charged by different platforms. Consider trading fees, deposit and withdrawal fees, and fees to use your credit card.
Cryptocurrency Selection: If you want to trade a wide variety of cryptocurrencies, choose a platform with a broad selection.
Payment Methods: The platform should accept cards, bank transfers through Faster Payments, SEPA, or other cryptocurrencies.
User Interface: The platform’s interface should be intuitive and user-friendly.
Customer Support: Good customer support can be invaluable if you have questions or run into problems.
What makes an interface good or bad?
Good crypto exchange interfaces are:
User-friendly to navigate: Clear menus, search bars, and intuitive layouts help users find what they need quickly.
Visually appealing: Clean designs with ample white space and convenient -to-read charts make for a pleasant user experience.
Transparent: Fees and trading information are clearly displayed, with no hidden costs.
Efficient: Placing trades, managing orders, and accessing support are all seamless processes.
Bad crypto exchange interfaces are:
Cluttered: Overloaded with information, making it hard to find what you need.
Confusing: Unclear labels, complex charts, and technical jargon make it difficult to understand.
Opaque: Hidden fees and unclear trading information create distrust.
Inefficient: Slow loading times, cumbersome trading processes, and poor support frustrate users.
Final Thoughts: Crypto Exchange vs Crypto Broker
A crypto exchange and a crypto broker are both platforms that allow users to buy and sell cryptocurrencies, but they cater to different needs and have distinct advantages.
An exchange is usually a dedicated cryptocurrency exchange, meaning it focuses solely on buying, selling, and trading cryptocurrencies.
Exchanges typically offer competitive trading fees, especially for those who trade frequently. This can lead to significant savings over time.
Crypto broker platforms can be appealing for those looking to diversify their investment portfolio. However when it comes to crypto, they use third parties to do their trades, and sometimes there’s no way of knowing which exchanges they use.
What Should Investors Choose?
Using a registered crypto exchange is advisable. Registered exchanges adhere to strict AML and Financial Promotions regulatory requirements.
Conversely, if an investor’s priority is accessing a wider range of cryptocurrencies not readily available on centralised exchanges, then a crypto broker might be their preferred choice. Especially if these investors prefer not to engage with decentralised finance (DeFi) platforms.
Conclusion: Choosing a Crypto Exchange
Choosing the right crypto exchange is the first step in your cryptocurrency trading journey. Take the time to research different platforms. Investigate unbiased review sites like Trustpilot.
Check out the customer service, user experience, and the availability of features for managing your crypto assets.
Whether you’re making your first crypto trades with fiat currency or transferring existing holdings to a cold wallet, the right platform will offer a seamless experience, especially through a convenient mobile app.
Whether you opt for a brokerage account or a full-fledged exchange, prioritising protection and aligning the platform’s features with your trading goals is paramount in navigating crypto markets.
We are required to put the below disclaimers, not sure about you guys, but this is from our lawyers.
Standard Risk Statement
The above article is not to be read as investment, legal or tax advice and it takes no account of particular personal or market circumstances; all readers should seek independent investment advice before investing in cryptocurrencies. The article is provided for general information and educational purposes only, no responsibility or liability is accepted for any errors of fact or omission expressed therein. Past performance is not a reliable indicator of future results.
UK residents are required (in accordance with local legislation) to complete an appropriateness assessment to show they understand the risks associated with what crypto/investment they are about to buy and enabling CoinJar to categorize them as an investor. New customers are also required under local regulations to wait 24-hours as a “cooling off” period (from account creation), before their account is active (i.e. to deposit, trade, withdraw etc.).
Cryptocurrency is currently not regulated in the UK. It’s vital to understand that once your money is in the crypto ecosystem, there are no rules to protect it, unlike with regular investments. You should not expect to be protected if something goes wrong. So, if you make any crypto-related investments, you’re unlikely to have recourse to the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS) if something goes wrong.
Remember:
Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
https://www.coinjar.com/uk/risk-summary
If you use a credit card to buy cryptocurrency, you would be putting borrowed money at a risk of loss. We recommend you obtain financial advice before making a decision to use your credit card to purchase cryptoassets or to invest in cryptoassets.
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