Factors to Consider When Choosing a Bitcoin Exchange

September 27, 2018

Bitcoin is not very different from a mobile application or computer program providing personal wallets. The difference is that it uses specific wallets to send money from one user to another. There are many exchanges available for people interested in investing or trading Bitcoin. However, knowledge of how such a system works is mandatory to ensure that users know exactly what is involved.

The transfer of money using an exchange is normally a rigorous process. Since it is not easy to acquire, it is important to make use of Bitcoin exchanges and brokers. Finding an effective exchange or broker is not an easy process. It is more than just getting one with a good website. There are three main factors to consider before you decide to use an exchange. They are:

Liquidity

BTC is traded in a market where investors and traders are in search for opportunities to buy or sell the currency. It is advisable to consider the exchange’s liquidity. Liquidity, in this case, refers to the capability of selling an asset while avoiding prices being affected significantly. This, in turn, causes the prices to drop.

More liquidity is experienced when there are more buyer and sellers. Some of the largest exchanges available have high selling prices. This feature creates an effect in which the system can generate into a larger network. As a result, more people are able to join.

Proximity

Cryptocurrency such as Bitcoin is relatively unregulated compared to traditional money. Keep in mind the landscape is expected to change in the near future. There is more exposure by the media and financial industries in this regard. There is the expectation of many governments wanting to exert some form of regulation on how monetary value is transmitted.

The main reason why governments would want to regulate such a system is to prevent it from being used for illegal activities like terrorism, illegal drug smuggling, and money laundering. It is important to confirm the geographic location of an exchange due to the differences in prices. Additionally, the exchange’s location will determine the laws that need to be followed by traders and investors.

Fees

Selling and buying of anything involve money. The money is usually the incentive for an exchange or broker. For example, trading using a platform like Bitcoin Loophole will result with some fees incurred for transactions. Unlike the buying and selling of stocks or bonds, a cryptocurrency exchange will charge a percentage. However, there are some discount brokers used by most investors that charge flat rate fees irrespective of the transaction.

It may be costly to use the percentage model when selling and purchasing for a long duration. There are popular exchanges that are known to charge higher percentage fees. These fees are on a sliding scale basis, normally based on volume. With such exchanges, it is common for them to charge a lower percentage where the volumes have been traded within a month or 30 days. As a trader, you should make sure you know the fees you are going to be charged by an exchange before you decide to use one.