20 Crucial Factors to Look for in a Cryptocurrency Exchange

Published: October 30, 2023 | Last Updated: September 23, 2023

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

Choosing the right cryptocurrency exchange can be mind-bogglingly confusing. There are so many exchanges out there. First of all, there are multiple types from order book exchanges to decentralized ones. Secondly, how do you know which one to trust? Even the large ones seem to implode from time to time. Thirdly, most sites aren’t exactly impartial in their recommendations. You won’t be shocked if I tell you that these websites rank exchanges according to whichever rewards them the most. Not to fret though. In this post I will walk you through 20 objective criteria you can use to choose a crypto exchange and find the one that suits you best.

What are the most important factors to consider when choosing a cryptocurrency exchange?

Infographics summarizing the 20 factors

infographic with factors to consider when choosing exchange 1
infographic with factors to consider when choosing exchange 2
infographic with factors to consider when choosing exchange 3

Factor #1. Security

crypto exchange security

When choosing an exchange you want to make sure your funds are secure.

There are two ways you could lose your money on an exchange:

  1. Firstly, hackers could steal funds from the exchange (e.g. Mt. Gox)
  2. Secondly, the exchange could go bankrupt (e.g. FTX), or the founder could go missing with your money (like Canadian Exchange Quadriga X). Unlike banks, your digital assets on a crypto exchange are not insured by the Federal Deposit Insurance Corporation (FDIC). In other words, if your funds go missing no one is going to bail you out.

1. How to avoid hackers

Here is what you need to look for to reduce the risk of security breaches.

Firstly, you want the exchange to store most of its assets in cold storage.

Cold storage means that crypto assets are not connected to the internet and therefore are unlikely to get hacked.

Secondly, make sure the exchange has, at minimum, the following security features available:

  • Two-factor authentication (2FA).
  • Email confirmation for a transaction to go through

In addition, the best exchanges will offer you the following security measures:

  • A global settings lock to prevent account changes without your authorization. This allows you to set a specified period of time during which no changes can be made. Even if a hacker gets access to your account they will not be able to perform any changes or transactions for the time period that you have set.
  • Options to set up a master key. This can override the global settings lock and can also be used to reset your password.
  • No phone or SMS account recovery. Phones are easy to hack.
  • Configurable account timeout.
  • PGP email encryption
  • Separate 2FA depending on the action you are taking (e.g. signing in, funding an account, etc.)

2. How to reduce the risk of bankruptcy

If an exchange is having liquidity issues by the time you hear about it it will be too late to withdraw your funds.

To reduce the risk of this happening you want to avoid exchanges with custodial wallets. Instead, you want a wallet that gives you self-custody.

With a self-custody wallet, you own the private keys to your assets.

The counter-risk here is that you lose everything if you lose your keys.

No one can recover them for you.

Also, a self-custody wallet can too get hacked unless it is a hardware wallet.

So you need to decide: do I want the risk of an exchange going bankrupt or the risk of me losing my keys or getting my wallet hacked?

Useful insights

The exchange that has the best reputation for security is Kraken.

However, its wallets are custodial.

The only exchange I know of that has a self-custodial wallet is Robinhood.

Technically, Robin Hood is a broker and not an exchange but more on that later.

Disclaimer: I am in no way affiliated with Kraken or Robinhood and do not have a commercial deal with them at the time of writing. Unforeseen security issues could arise with either of these providers. Make sure you do your own research to make an informed decision.

Factor #2. Fees

Different exchanges charge different fees (duh!). But there are nuances you need to watch out for.

Exchanges will charge different maker and taker fees depending on the trading pair and the volume.

Furthermore, some exchanges issue their own tokens and offer lower fees when you transact in that token.

For example, Binance has issued a token called BNB.

You get more friendly charges when you use BNB to buy cryptocurrencies than when you use other tokens.

What are maker/taker fees?

  1. Maker: A “maker” is someone who places an order that doesn’t get immediately matched with an existing order on the exchange’s order book. Instead, their order adds liquidity to the market. For example, placing a limit order to buy a cryptocurrency at a price below the current market price is considered a maker order. Makers often receive a rebate or pay a lower fee because they are contributing to the liquidity of the market.
  2. Taker: A “taker” is someone who places an order that gets matched with an existing order on the order book, thus removing liquidity from the market. Market orders, which execute immediately at the current market price, are an example of taker orders. Takers usually pay a higher fee because they are consuming liquidity by executing orders that match existing ones

As an example here are what fees look like on Coinbase:

coinbase trading fees
Coinbase trading fees. Source: Coinbase.com

Deposit and Withdrawal fees

Apart from trading fees look for a table that shows you the deposit and withdrawal fees.

Exchanges will charge you different fees depending on the deposit or withdrawal method that you use and depending on your geography.

CEX deposit withdrawal fees
Deposit and withdrawal fees on CEX.io. Source: CEX.io

Factor #3. User experience

Another important factor to consider when choosing an exchange is how easy they are to use.

I have used over 11 exchanges up until now and in my previous job I used to advise companies on their websites’ user experience.

So I notice this stuff.

In my experience, there are 3 major categories of exchanges:

1. The US-based ones

These are exchanges like Coinbase, Gemini, Phemex and Kraken.

Each of them is different from the other but their common theme is that they try to keep things simple.

They usually have a beginner version and a pro version.

Sometimes these are separate mobile apps and sometimes it’s just a toggle in the interface.

2. The Chinese-origin ones

These exchanges all seem as if they are using the same platform.

In this category, you have exchanges such as Binance, KuCoin, MEXC, LBank, etc.

Their user interfaces are much busier. It’s like trying to drink from a fire hose. However, once you learn one you know them all.

Their aim is to showcase the plethora of options and product features that they offer their users including special promotions and new features.

3. Decentralized exchanges

These are exchanges that are built on top of blockchains that have smart contracts such as the Ethereum blockchain.

These types of exchanges are decentralized and autonomous.

They operate on their own according to the logic of the code they were written in and they are not managed by a central intermediary.

Some of them are really popular.

For example, Uniswap is in the top 5 exchanges by global trading volume.

As a result, the user experience is simpler but there is a learning curve to understand how it works exactly.

If you want to understand decentralized exchanges better I recommend you read my series of tutorials on Uniswap.

They are free and no sign-up is required.

US design of types of exchanges compared
From left to right: Kraken (US-based) vs. Binance (Chinese origins) vs. Uniswap (decentralized). The interface across exchange platforms differs.

How to decide which exchange is right for you

Deciding what makes a user-friendly interface is very personal but you will know when you sign up to the right exchange for you.

If the look and feel or the sign-up steps give you a headache then you know it’s not for you.

The ease of account setup and verification will also depend on your jurisdiction.

Some countries require fewer documents than others.

Having said that once you use two or three exchanges you will soon become indifferent to the user experience and focus more on the other factors mentioned in this review such as product features and coin availability.

Factor #4. Fiat On Ramps and Off Ramps

The fourth factor you need to check is whether you can transfer fiat money such as Dollars, Euros, and Yuan to the exchange of your choice.

You will need fiat to buy crypto.

But not all exchanges allow all types of fiat. For example, the US faction of Binance, named Binance.us, does not allow trading in US dollars.

Also, different exchanges allow different ways to onboard: Here are some common options

  • Instant ACH bank transfers
  • Wire transfers
  • Debit Card
  • Credit Card
  • PayPal or other payment processor

This means that you would first need to buy crypto somewhere else and then send that crypto to your Binance.us account if you were hell-bent on using Binance.us

The same goes for withdrawals.

Make sure you can withdraw to your bank account or whatever your preferred option is.

Important note if you plan to use a broker: Many brokers allow you to buy crypto (e.g. Fidelity, Robinhood, eToro. WeBull, etc.) but not all of them allow you to withdraw to another crypto address. For example, if you buy Bitcoin on Fidelity you can’t move that Bitcoin to your wallet or to another exchange. You would first need to cash out and start over elsewhere.

For more on this check out
How to Transfer Dogecoin from Robinhood to Coinbase: A Step-by-Step Guide

Factor #5. Liquidity

High liquidity is super important. It means that there are enough buyers and sellers for multiple trading pairs.

You don’t want to find yourself setting a buy or sell order and then end up not finding anyone willing to take the opposing side of the trade.

Higher trading volume in crypto indicates greater liquidity as there are more buyers and sellers actively participating in the market.

For this reason, it is best to choose a large exchange.

Here are the top 10 centralized and top 10 decentralized exchanges by trading volume at the time of writing.

Top crypto exchanges

Exchange Trading volume(24h) DEX Trading volume(24h)
Binance $4,412,649,928 dYdX $848,119,107
Coinbase $729,229,449 Uniswap v3 (Ethereum) $371,017,483
Kraken $453,680,893 Kine Protocol (Ethereum) $353,836,366
ByBit $770,218,661 Uniswap v3 (Arbitrum) $113,241,164
KuCoin $219,108,910 DODO (ethereum) $105,492,876
OKX $597,508,505 Apex Protocol $98,441,640
Bitstamp $153,827,301 Uniswap v2 $90,946,886
Bitfinex $95,192,959 Pancake Swap v3 $90,224,302
Gate.io $493,725,242 Curve (Ethereum) $71,237,813
HTX $976,330,111 Maverick Protocol $67,500,846

Factor #6. Trading pairs

There are more than 20,000 cryptocurrencies so not all exchanges offer all trading pairs.

tradings pairs
Some of the trading pairs on Binance

If you are based in the US you will find that the trading pair gamut is a little more restricted.

In addition to complying with stricter or more defined regulations, some US-based exchanges will avoid tokens that look risky or sit in a grey legal zone.

Of course, nothing stops people from joining a decentralized exchange (DEX) since those do not require verification.

In my experience, Binance (outside the US) has the largest number of trading pairs.

Yet even while using Binance I have had to sign up for several other exchanges to invest in tokens I wanted to buy as they were not available on Binance. Most often these were MEXC and KuCoin.

As you start diversifying your investments in crypto you will likely open accounts with more than one exchange depending on their token listings.

Factor #7. Trading Features and Products

If this is your first time investing in crypto you should be aware that most exchanges have a beginner version and a pro version.

The beginner version will just have a buy/sell button and will place a market order at the prevailing price.

The pro version will allow you to set limit orders and stop orders.

To understand Limit orders better read the following

For example, buy this crypto if it drops below a threshold and sell if it goes above a certain price.

However, some exchanges offer advanced trading tools as well.

The most popular feature with experienced traders is margin trading.

This allows you to trade crypto with leverage i.e. to borrow money to trade.

Margin trading is extremely risky and more often than not you will lose money and get liquidated.

In order to trade on margin some exchanges will require that you go through some tutorials and answer a quiz correctly. Their terms and conditions vary though.

For example, on Binance you need to have at least $10,000 in your margin account to be able to use it.

Other advanced features to look for on an exchange are derivatives such as futures and options trading.

Finally, check to see what charting tools are available and what technical indicators you can use. Most centralized exchanges hook up to a provider called Trading View.

Pro traders might also care about API access which allows them to export and customize data to their own tools and graphs.

Check out 30 Best Crypto Chart Websites and Tools for Traders for more.

Factor #8. User Privacy

Centralized crypto exchanges and brokers need to comply with Know You Customer (KYC) and Anti-Money Laundering (AML) regulations.

They will usually ask you to upload an ID and proof of a physical address such as a gas bill.

Decentralized exchanges operate in a grey zone for now and don’t even require an email.

But most decentralized exchanges don’t offer fiat onboarding.

Wherever you onboard fiat you are going to have to go through KYC.

coinbase proof of address
Here Coinbase is asking for a proof of address

Factor #9. Regulatory Compliance and Geography

Make sure you know that the crypto exchange you plan to use is legal and has the appropriate licenses to operate in your jurisdiction.

For example, Coinbase and other exchanges do not support Hawaii.

Because the rate of innovation in crypto has taken financial services authorities by surprise there is a lag in regulation.

However, frameworks are being put in place.

Currently, the US, Japan, Germany, and the Netherlands have issued licenses for crypto exchanges.

Make sure yours has one if you are from those countries otherwise, you risk your exchange being shut down.

In the EU the Markets in Crypto Assets regulation, MiCA framework is expected to come into place in 2024. This means that licenses will be passportable meaning if you have a MiCA license from one EU country you will be able to use it in the rest of the EU.

Factor #10. Decide Between Brokers and Exchanges

Another dimension you should consider is whether you want to use a broker or a crypto exchange.

Here is a quick breakdown of the differences

Brokers vs Crypto Exchanges

Brokers Crypto Exchanges
Examples: Robinhood, Webull, eToro Examples: Binance, ByBit, Coinbase
Can trade stocks and crypto Only crypto
Limited range of crypto pairs Wide range of trading pairs
Can't send crypto to an exchange/wallet (except for Robinhood and eToro) Can send the crypto anywhere you want
Can't plug into DeFi to earn a yield Can plug into DeFi like lending your crypto or staking it

The biggest difference is that brokers don’t have as wide a range of trading pairs and don’t offer wallet support (except for Robinhood).

The main benefit of using a broker is to manage your crypto and stock investment in one place.

Factor # 11. Decide between Centralized and Decentralized

What’s good about centralized exchanges

  • A centralized exchange is run by a for-profit company that acts as a market maker and matches buyers and sellers.
  • It charges fees to generate revenues and has a CEO, a COO, a marketing team, a customer support team, and so on.
  • You can trade a wide variety of trading pairs
  • From a user perspective, there are more options to deposit fiat currency and the interface looks similar to a stock exchange.
  • Wallets are custodial meaning you don’t have access to your private keys
  • Requires KYC
  • Available where it is allowed

A decentralized exchange is a completely different thing.

Characteristics of a decentralized exchange

  • It is decentralized i.e. there is no central authority deciding on product features or operations
  • You are responsible for your funds and your private keys
  • There is no customer support
  • You can only trade pairs that belong to the same blockchain. For example, you can’t trade Bitcoin for Ethereum. You can only trade wrapped Bitcoin. See What is Wrapping in Crypto for more on this. Decentralized exchanges are trying to address using a technology called bridges. But bridges keep getting hacked.
  • Fees go to liquidity providers and validators who validate transactions.
  • You can plug into DeFi and lend your crypto or become a liquidity provider. By joining a liquidity pool you can earn a return on your crypto holdings.
  • A decentralized exchange won’t ask for any personal information as there is no KYC process.
  • Available globally
  • Wider choice of coins and tokens since anyone can list a token on a DEX.
  • You hook up a wallet to use the DEX.
Osmosis wallet connect
Here is a popular DEX called Osmosis. The first thing a DEX will ask you to do is connect your wallet.

The main drawback of DEXs is that you need to onboard using crypto.

Most DEXs don’t accept fiat.

However, this is changing with plugin providers such as MoonPay entering the market to cover the gap.

The other thing to note is that the user interface takes a little getting used especially the notion of slippage.

Factor #12. Reputation

I would recommend you use an exchange with a good reputation and strong community.

Check the Trust Pilot rating and what people are saying about the platform on Quora, Reddit, and other social media.

Also, check the news headlines to understand if the exchange might be in any trouble.

With crypto, you are going to have to be on top of things.

You can’t completely set it and forget it unless you just buy a bunch of crypto and store it all on a hardware device.

Check out who you need to follow to stay in the loop on things:

The Ultimate List of the 25 Best Crypto Advisors to Follow in 2023

Best Crypto Advisors to Follow

These experts will provide you with the insights and analysis you need to stay ahead of the curve in the ever-evolving world of crypto. Read more.

Factor #13. Customer support

A reliable exchange should provide multiple channels for customer support, such as live chat, email, or phone, and have a responsive support team that can assist users with any issues or inquiries they may have.

All centralized exchanges offer customer support.

Decentralized ones don’t.

Most of the support centers can be contacted via email or chat.

Factor #14. Insurance protection

A limited number of exchanges insure users’ crypto on the exchange.

For example, Binance operates a SAFU (Safe Asset Fund for Users) that collects 10% of the trading fees and sets them aside in case of an emergency.

The fund is already worth $1Bn.

Other exchanges with insurance policies include:

  • Coinbase
  • Bitstamp
  • Gemini
  • Crypto.com

Factor #15. Deposit and Withdrawal Limits

Nuff said but you need to check the small print here.

Some exchanges have limits on the amount you can deposit or withdraw depending on the stage of your verification.

Factor #16. Passive income options

Some centralized exchanges allow you to participate in DeFi and earn passive income just like you can do with a crypto wallet.

For example, I know for a fact that Binance, Kraken, and Coinbase allow you to stake various cryptocurrencies.

If you don’t know much about staking check out the following resources

The other alternative is to buy the crypto on an exchange, it doesn’t matter which, and then send it to a wallet and plug into DeFi protocols.

Here you can lend your assets, invest in liquidity pools, join a yield aggregator to compound your returns, or participate in any financial innovation that tickles your fancy and go fully Degen.

coinbase wallet interface
Many wallets have a web3 browser so you can directly integrate into DeFi. Here is a screenshot of the Coinbase wallet.

Factor #17. Educational Resources

Many of the large crypto exchanges offer a range of educational tutorials.

Some, even reward you in crypto for completing their courses.

To see an example read about Coinbase Earn.

If you don’t want to do that you can study my Crypto 101 tutorials on Elemental Crypto instead. This is my collection of curated articles that will get you up to speed with all things crypto if you are a rookie.

Factor #18. Exchange Uptime

Ensure the exchange has a history of high uptime and minimal outages.

Factor #19. Tax Reporting

If you plan to trade cryptocurrencies you will need to report your profits or losses to your local tax authority.

This is a headache to do with most crypto exchanges.

Some only allow you to go back a certain amount in time and some just offer annoying formats to see the information.

Once you choose an exchange make sure you check out the section where you can download historical reports and if those make sense.

Here are some additional resources for crypto tax reporting:

Factor #20. Mobile Alerts

Some of the centralized exchanges allow you to set custom push notifications for important updates.

For example, on Binance I can set a notification for when a certain crypto I am interested in crosses a specific price.

Not the most important feature but nice to have just in case. If your exchange does not have an alert option you can always sign up to an alert service. Check How to Get Crypto Price Alerts for more.

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Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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