With a $1.76 trillion market capital, cryptocurrency is a huge industry today involving more than three hundred million crypto owners around the world. Even during the crypto bear market, $93.4 billion worth of crypto is traded every day. While the majority of cryptocurrencies are traded through an exchange, many people opt for a crypto broker to conduct buying, selling, and exchanging digital assets. Crypto brokers and crypto exchanges are the two most popular ways of trading today. The two might sound similar, yet they two are distinctly different from one another. In this article, we will know what is the difference between a crypto broker, and a crypto exchange, and why a crypto broker is the best option.
What is a Crypto Broker?
A crypto broker acts as an intermediary between the buyer and the seller and acts as a medium between the trader, and exchange platforms. A crypto broker can be an individual, an exchange, or a firm. In particular situations, a crypto broker can provide their clients with distinctive products that allow them to engage in contracts and trade on cryptocurrency values. The cryptocurrency derivatives can be anything such as crypto options, trading CFDs, crypto futures, etc. Investing in crypto, and the crypto rate fluctuations are the two ways brokers provide their services to clients. One of the most popular ways traders make a profit with crypto is “crypto price volatility”.
Often without trading with crypto directly, people often use “Contracts For Difference”, or CFDs. Now, what are CFDs? CFDs or Contracts of difference are agreements between the seller and the buyer with a difference in the value of specific assets. The subject of the contract is the value of the asset at the time of completion of the contract, and the value at the time of trade finalization. CFD trading is easy to understand. Suppose we trade with an asset of Bitcoins value, at the time of trade completion if the price rises, the profit margin is final, if the bitcoin price drops, then the buyer compensates the seller. Suppose you open a broker account, and trade for a value of thousand dollars, if the value drops, the margin-left is taken by the brokerage, while if the value rises, the profit margin is yours.
What Are the Advantages and Disadvantages of a Crypto Broker?
Crypto brokers are in demand since the pandemic and have shown potential future in the industry. Before you decide to choose between an exchange and a crypto broker, it is important to understand the advantages and disadvantages of a broker.
Advantages of a Crypto Broker
- The brokers offer you a variety of options to trade with besides cryptocurrencies and CFDs.
- User-friendly and comfortable ways to withdraw and deposit money. The users can utilize basic debit and credit cards to conduct their transactions.
- Crypto brokers give you the scope of utilizing copy trading and other services.
- Crypto brokers are licensed and regulated most of the time, which makes them safe and reliable.
- The clients can rely on the traders, as they are available for support all around the clock.
Disadvantages of Crypto Brokers
- The cost of services can sometimes be higher when huge amounts are involved. This can be one of the major drawbacks.
- Sometimes, fake brokers offer “too-good-to-be-true” profits to their clients.
Sometimes, when people cannot trade cryptocurrencies on their own, they find it as a drawback. Many people consider using an exchange due to the limited availability of assets. However, Paybito’s crypto broker platform provides an opportunity for brokers to utilize its multi-asset exchange.
What is a Crypto Exchange?
The primary function of cryptocurrency exchanges is to provide pairs of crypto to crypto, and crypto to fiat for exchanges to its customers. However, unlike crypto brokers, the exchanges do not provide CFD trading to their customers. Being the primary business objective, the crypto exchanges provide a wide range of crypto assets to their customers.
Advantages of a Crypto Exchange
Here are some of the advantages of a crypto exchange for traders.
- The traders can directly trade with cryptocurrencies, which includes, buying, selling, and exchange of crypto assets.
- Crypto exchanges offer a wide variety of crypto assets, and they regularly update their platform to increase their asset list.
- Crypto exchanges are constantly updating and offer a range of advanced analytical and trading tools, such as futures trading.
Disadvantages of Crypto Exchange
- Centralized crypto exchanges sometimes ask for transaction fees for their convenience, and services. Therefore when trading with high volumes, the transactions can be expensive.
- Since crypto exchanges are entirely responsible for the client’s funds. Therefore, if you are planning for large crypto volumes, then the funds can be a target for cybercriminals.
What is the Difference Between a Crypto Broker, and Crypto Exchange?
To understand which one to choose among the two, it is important to understand the difference between a crypto broker, and a crypto exchange.
Cyber Threats & Regulations
Crypto exchanges have been a target for cybercriminals. Although it doesn’t really mean that the crypto brokers are entirely safe. The difference is that the brokers have a strong and high-end security system and are regulated. Previously several accidents have taken place in exchanges such as the hacking of Mt. Gox, KuCoin, etc. Major exchanges such as Binance are often a target of cybercriminals and scammers who attack websites, KYC databases, and others. On the other hand, brokers are under the regulations of authorities. This means no matter what you do with your crypto funds, they are under the surveillance of state governments, such as the SEC in the US.
Validation & Authentication
Every exchange runs on a unique mechanism. While some exchanges do not mandate entering a legitimate email address and cross-verify with a password. On the other hand, advanced exchange platforms require a valid authentication procedure, especially when working with fiat currencies. If the trader is looking for a large sum of crypto deposit then the people require to undergo an entire KYC procedure. During the bull phase, when millions of people want to enter the exchange, the verification might take you two days. However, in such situations, new accounts are rejected due to the rush, and lack of capacity. Unlike crypto exchanges, opening an account in crypto broker platforms are not difficult. However, there are strict conditions awaiting you. Since brokers are regulated by the states, KYC verification cannot be avoided. Any person willing to open an account with a crypto broker must provide proper documents and residential addresses such as banks, rent statements, etc.
Deposits & Withdrawals
If you are planning to deposit or withdraw money from your exchange, there are two ways to do so. Traders can use a credit or debit card, or a bank account, all of which require fees. In such situations, it is best not to use fiat currencies. Moreover, several exchanges do not accept fiat currencies and require you to make a deposit only in cryptocurrencies.
In such cases, crypto brokers are best to use. Brokers allow you to freely use bank accounts, credit or debit cards, and e-wallets. Advanced crypto brokers allow you to utilize your cryptos as well. The fees are usually low and a maximum of 3% which can save you a lot of money.
Why Crypto Brokers is the Best Option?
It is important to understand that crypto brokers are experts in the field and will make the best of your hard-earned money. Although crypto brokers charge a sum as a commission, you can be assured of low transaction fees and most importantly security. The crypto brokers offer crypto derivative trading which provides a wide range of options such as crypto CFDs, crypto futures, etc. while choosing a crypto broker, you only need to analyze the brokers rating, and reputation online, understand the withdrawal costs, and other expenses, and lastly, verify the brokers, and look into the asset database and check their commission rates.