Cryptocurrency exchanges and cryptocurrency brokers are both great avenues to buy and sell various cryptocurrencies. However, they differ in several ways. In this guide, we will take a look at the main differences between crypto exchanges and brokers so that you can figure out which is better for your needs.
What are the main differences between an exchange and a broker?
Before you can understand which is more suitable for you, it’s important to understand the key differences between cryptocurrency exchanges and cryptocurrency brokers.
Cryptocurrency exchanges pair buyers and sellers using an order book that records the prices that each trader wishes to exchange at. When the buyers and sellers agree on a price or meet in the middle, an exchange happens.
With a cryptocurrency broker, an organisation establishes the sale price and fee they’re willing to work with. Brokers monitor the market and act on instruction from their customers to buy or sell based on an estimate or quoted price that is generated from live market conditions.
Essentially, with a crypto exchange, users trade cryptocurrencies directly with one another for other cryptos. With a broker, users transact with the broker to trade cryptocurrencies at a price set by that individual or company, essentially acting as a middle man.
A cryptocurrency brokerage also provides users with access to other services, such as lending coins against collateral, trading on margin for higher volume trades, utilising stop orders and providing more privacy than exchanges do.
Major takeaway: In an exchange, users trade directly with one another, whereas with a broker the broker acts as an intermediary between buyers and sellers.
Using a crypto exchange
Registration and verification
Registering for an exchange is not too complex of a process, and is often as simple as registration on other websites. The user has to provide an email and create a password. After they have created an account with this information, the verification process begins in order to enable depositing and withdrawing funds into their account. These documents may differ slightly from exchange to exchange but typically will require some form of photo identification.
Making deposits and withdrawals
Depositing funds to a cryptocurrency exchange can be difficult as they often require you to use cryptocurrency as the deposit. This not only requires you to buy some bitcoins or your other currency of choice before making a deposit but there are also many additional fees and commissions for each transaction that will affect your total balance.
Initiating a withdrawal from an exchange is difficult when using fiat currency. Withdrawing to a digital wallet or other online exchange will typically incur a fee. Initiating a withdrawal to your bank account isn’t always easy, either; not all banks accept transactions coming from crypto exchanges due to their origin and the nature of transactions.
Trading on a crypto exchange is fairly straightforward. You’ll first select the crypto asset you want to trade, open your trade and then place your desired trade size and price.
You can still set automatic buy and sell orders to ensure you don’t have to watch your exchange platform like a hawk.
Important to remember: If you want to trade using an exchange you’ll need to first convert your fiat currency to cryptocurrency to make a deposit
Using a cryptocurrency broker
Registration and verification
Most brokers require their users to complete KYC (Know Your Customer) verification when signing up. This is a process that typically requires users to submit a photo of their government-issued photo ID (i.e. a drivers license or passport). KYC serves an important purpose for avoiding association with tax fraud and money laundering.
Making deposits and withdrawals
Unlike an exchange, a cryptocurrency broker provides clients with a number of ways to deposit funds when opening an account. The client can use their credit card, depositing crypto from a digital wallet or other options in order to make a deposit, simplifying the process. Most brokers also do not have any fees associated with deposits.
Crypto brokers typically make money from trading fees. For instance, users will be charged a fee every time they buy, sell or swap crypto.
In most cases, brokers purchase large amounts of cryptocurrency from one or more crypto exchanges and then sell them to their own users.
Crypto brokers often offer users an extensive range of tools to improve their trading experience including technical analysis charts, price-triggered buy and sell orders, price alerts and more.
Should you use a cryptocurrency exchange or broker?
Like most things, there are pros and cons to each.
Whether you choose to use a broker or exchange will be determined by a range of factors including privacy levels, regulatory levels and fees.
Benefits of using an exchange
- Cryptocurrency exchanges may offer greater benefits when it comes to market fluctuations as the market sets the price, not the broker
- Not all cryptocurrency exchanges require KYC (Know Your Customer) identify verification, so there’s a greater degree of privacy
Detriments of using an exchange
- Exchanges are arguably less suitable for beginners and require more in-depth and up-to-date knowledge of the crypto market
- Exchanges can be more risky – distributed exchanges are more vulnerable to client-side attacks and server-side attacks as attackers can more easily bypass two-factor authentification
- You often can’t deposit fiat currency into decentralised exchanges
Benefits of using a broker
- Brokers are typically regulated by financial authorities which can mean greater security.
- Brokers tend to have deeper liquidity than exchanges as they typically have access to a network of liquidity providers (exchanges).
- Depositing and withdrawing funds is significantly easier.
- Most brokers offer market analysis services and trends so you can better plan strategies.
- Crypto brokers often have extensive customers service departments to assist with customer queries and concerns.
- Brokers often have tighter spreads meaning you can maximise your profits.
Detriments of using a broker
- You may not be able to capitalise on large market upturns to the same degree as with an exchange.
- Brokers typically list less cryptocurrencies than that of an exchange.
As a broker, Swyftx offers numerous features attractive to beginner and crypto aficionados alike including Real-Time Price Feed & API, Stop, Limit & Market Orders, and integrated TradingView charts.
There’s no single answer as to whether a broker or an exchange is better, rather it will depend on your goals and how you intend to use each.