16 June 2020
The Difference Between a Crypto Exchange and Broker
When it comes to trading cryptocurrency, you have several options, including using a crypto exchange and a broker. At a glance, these two may seem to be identical trading methods, and they do have many commonalities. However, there are some significant differences that you should be aware of, as they will help you choose whether an exchange or broker is right for you.
Whether you use a cryptocurrency exchange or broker, you will be able to convert between cryptocurrencies, and possibly between crypto and certain fiats. The difference comes from the mechanics of how this is done.
Crypto exchanges work similarly to a stock exchange, and they are frequently centralized. Buyers and sellers visit the exchange to trade crypto using the current market price. In this model, the exchange is usually the middle-man, coordinating or facilitating the trade and charging a fee for doing so.
By contrast, when you convert or trade with a crypto broker, your funds get traded on a dealer network instead of the exchange. This is called an over the counter (OTC) market. Crypto brokers find buyers and sellers with large crypto pools for liquidity and use those pools for sales. Brokers tend to be more flexible and convenient, along with faster.
The majority of cryptocurrency exchanges make it quick and easy to trade, appealing to those who want to trade funds quickly. You usually choose a trading instrument, open the trade, and choose from buy or sell orders as well as stop-limit orders. This is great for low-volume or beginner traders. Additionally, cryptocurrency exchanges frequently have more digital currencies available.
Those who want more advanced trading features will typically want to look at crypto brokers, as they tend to have technical analysis tools and other tools to help you with risk management. You are also more likely to get tighter spreads with brokers than exchanges.
If you are trading smaller volumes or just occasionally converting cryptocurrency, then a crypto exchange will likely be good enough for your needs. If you trade more frequently on larger volumes, then you may find a broker more appealing.
It is typically incredibly quick and straightforward to register for a cryptocurrency exchange. You will need to confirm your email address and go through verification before you can withdraw. Sometimes, you may not even need to verify your account until you want to withdraw.
It is similarly quick to sign up with a crypto broker, but you will almost always need to verify your account earlier on in the process, such as before you do any trading. This makes verification quicker.
Depositing and Withdrawing Funds
Most cryptocurrency exchanges make it easy to deposit and withdraw in crypto but not necessarily in fiat. There may not be an option to deposit in crypto, or it may be challenging or require high fees. There may also be bank-related issues withdrawing from crypto exchanges, as some banks do not accept funds from this source. By contrast, crypto brokers tend to offer numerous deposit and withdrawal methods, including both in crypto and fiat. It is usually easier to use fiat for funding and withdrawals, but it typically has lower fees from brokers than exchanges.
Safety will depend on the specific crypto exchange or broker that you use. It is more likely that a crypto broker will be regulated than a crypto exchange, but this is not a given. Additionally, some crypto exchanges have additional security measures to make up for a lack of regulation. Either exchanges or brokers can have an advantage for safety, depending on the specific company you choose to trade with.
Crypto exchanges facilitate trades between buyers and sellers, while crypto brokers work with dealers to create over the counter trades. Although the two are very different, one is not inherently better than the other. Generally, long-term holders or those trading lower quantities will prefer exchanges while day traders will prefer brokers, although this is not always the case. The most important thing to do is research the exchange or broker you choose, to ensure that it is safe.