What is a digital currency exchange?
A digital currency exchange, or DCE, is a platform to buy, sell or exchange digital currencies such as Bitcoin. These digital currencies can then be exchanged for other digital currencies, or for “real” money such as US$ or Euro.
DCEs usually accept credit card payments, international bank or wire transfers, or postal money orders in exchange for digital currencies. Some DCEs can also convert digital currency balances into anonymous prepaid cards which can be used to withdraw funds from ATMs worldwide.
Digital currency trading exchanges take a commission for their services on any transaction or charge a flat fees. Some of the main DCEs include Btc.sx, CEX.IO, BTCChina, Coincheck, Coinfloor, Coinbase, Gatecoin, GDAX, Gemini, itBit, Kraken, LocalBitcoins, Luno, Mycelium, Poloniex, etc. They typically charge between 0.1 to 0.5% per transaction but in some instance over 1%.
Most exchanges offer a wallet function to store their client’s virtual currency.
Note: The digital currency exchanges that trade a specific digital currency are usually independent of the creators of the digital currency.
Over the counter trading, or OTC, is another way to trade crypto-currency such as bitcoin. Bitcoin OTC desks include Bitfinex, Bitstamp, BitX, Coinfloor, itBit, LocalBitcoins, Octagon Strategy, etc. They typically charge between 0.1 to 0.5% per transaction.
Direct Trading platforms offer direct person-to-person trading where individuals from different countries can exchange their digital currency. Individual sellers set their own exchange rate, and therefore there is no fixed market price.
Crypto-currency brokers sell crypto currencies at a price set by them (same principle as foreign exchange dealers).
Digital currency providers, or DCPs, keep and administer accounts on behalf of their customers, however without directly issuing digital currency to their customers. Some digital currency exchanges are subsidiaries of digital currency providers, but many are independent businesses.
How to select an appropriate digital currency exchange?
Digital currency traders should check several points before selecting and trading with a specific digital currency exchange. Some of the key criteria to take into account include:
- Beware of online scams and fraud. Some major exchanges have been hacked or went bankrupt, such as Mt.Gox. Do your homework and check the reputation and the security of the exchange through dedicated online forums, reviews, financial websites, news articles, etc.
- Different exchanges have different rates, which can vary by up to 10%.
- Not all exchanges offer trading on the same crypto-currencies, or will accept the same fiat “real” currency for trading.
- Fees can differ substantially depending on the exchange. Check what are the deposit, transaction and withdrawal fees.
- Different exchanges propose different payment options such as credit or debit card, PayPal, or wire transfer. Using a credit card to purchase digital currencies takes time and costs more because of identity verification and processing fees. Wire transfer can take several days to process.
- The user-friendliness of the exchange can also vary.
- Some exchanges may offer specific features that are only accessible to clients from certain countries.
- Once we have selected your exchange, you will need to open an account with them, which can be more or less complicated or transparent, depending on the exchange. Most exchanges require some form of ID verification but some exchanges can allow anonymous users.
Main digital currency exchanges
Here is a non-exhaustive list of some of the main digital currency exchanges: