A bitcoin exchange is a digital marketplace where traders can buy and sell bitcoins using different fiat currencies or altcoins. A bitcoin currency exchange is an online platform that acts as an intermediary between buyers and sellers of the cryptocurrency.
The currency ticker used for bitcoin is either BTC or XBT.
- A bitcoin exchange acts as the intermediary between a seller and a buyer or, to use cryptocurrency language, between a “maker” and a “taker.”
- A bitcoin exchange works like a brokerage, and you can deposit money via bank transfer, wire, and other common means of deposit. However, you will often pay a price for this service.
- If a trader wants to trade between cryptocurrencies, they will pay a currency conversion fee, similar to institutional banks when you trade money from different countries.
- Purchases and sales are based on the same ordering system as existing brokerages, where a buyer (taker) places a limit order which is then sold when a corresponding cryptocurrency is available from the seller (maker).
Understanding Bitcoin Exchanges
Bitcoin exchange platforms match buyers with sellers. Like a traditional stock exchange, traders can opt to buy and sell bitcoin by inputting either a market order or a limit order. When a market order is selected, the trader is authorizing the exchange to trade his coins for the best available price in the online marketplace. With a limit order set, the trader directs the exchange to trade coins for a price below the current ask or above the current bid, depending on whether they are buying or selling.
To transact in bitcoin on an exchange, a user has to register with the exchange and go through a of verification processes to authenticate his or her identity. Once the authentication is successful, an account is opened for the user who then has to transfer funds into this account before he or she can buy coins.
Different exchanges have different payment methods that can be used for depositing funds including bank wires, direct bank transfers, credit or debit cards, bank drafts, money orders and even gift cards. A trader who would like to withdraw money from his or her account could do so using the options provided by his exchange which could include a bank transfer, PayPal transfer, check mailing, cash delivery, bank wire, or credit card transfer.
Decentralized bitcoin exchanges are those that are operated without a central authority. These exchanges allow peer-to peer trading of digital currencies without the need for an exchange authority to facilitate the transactions.
There are a number of benefits to decentralized exchanges. First, many cryptocurrency users feel that decentralized exchanges better match the decentralized structures of most digital currencies themselves; many decentralized exchanges also require less personal information from their members than other types of exchanges. Second, if users transfer assets directly to other users, that eliminates the need for the transferring of assets to the exchange, thereby reducing the risk of theft from hacks and other fraud. Third, decentralized exchanges may be less susceptible to price manipulation and other fraudulent trading activity.
On the other hand, decentralized exchanges (like all cryptocurrency exchanges) must maintain a fundamental level of user interest in the form of trading volume and liquidity. Not all decentralized exchanges have been able to achieve these important baseline qualities. Further, users of a decentralized exchange may have less recourse if they are the victims of fraud than those who make use of exchanges with centralized authorities.
Making deposits and withdrawals comes at a price, depending on the payment method chosen to transfer funds. The higher the risk of a chargeback from a payment medium, the higher the fee. Making a bank draft or wiring money to the exchange has a lesser risk of a chargeback compared to funding your account with PayPal or a credit/debit card where the funds being transferred can be reversed nd returned to the user upon his/her request to the bank.
In addition to transaction fees and funds transfer fees, traders may also be subject to currency conversion fees, depending on the currencies that are accepted by the bitcoin exchange. If a user transfers Canadian dollars to an exchange that only deals in U.S. dollars, the bank or the exchange will convert the CAD to USD for a fee. Transacting with an exchange that accepts your local currency is the best way to avoid the FX fee.
All bitcoin exchanges have transaction fees that are applied to each completed buy and sell order carried out within the exchange. The fee rate is dependent on the volume of bitcoin transactions that is conducted.
Foreign exchange spreads are important measures when transacting in bitcoin and vary depending on how liquid the bitcoin exchange is.
Note that a bitcoin exchange is different from a bitcoin wallet. While the former offers a platform through which bitcoin buyers and sellers can transact with each other, the latter is simply a digital storage service for bitcoin holders to store their coins securely. To be more technical, bitcoin wallets store private keys which are used to authorize transactions and access the bitcoin address of a user. Most bitcoin exchanges provide bitcoin wallets for their users, but may charge a fee for this service.
Makers and Takers
Online bitcoin marketplaces usually designate bitcoin participants as either makers or takers. When a buyer or seller places a limit order, the exchange adds it to its order book until the price is matched by another trader on the opposite end of the transaction. When the price is matched, the buyer or seller who set the limit price is referred to as a maker. A taker is a trader who places a market order that immediately gets filled.
Example of a Bitcoin Exchange
For example, on a bitcoin exchange, three coin sellers are asking for BTC/USD 2265.75, BTC/USD 2269.55, and BTC/USD 2270.00. A trader who initiates a market order to buy bitcoins will have their order filled at the best ask price of $2265.75. If only five bitcoins are available for the best ask and 10 coins are available for $2269.55, and the trader wants to buy 10 at market price, the trader’s order will be filled with 5 coins @ $2265.75 and the remaining 5 @ $2269.55.
However, a trader who thinks they can get bitcoins for a better price could set a limit order for, say, $2260.10. If a seller matches their ask price with this order or sets a price below this figure, the order will get filled. All of this is done by the exchange, which takes a percentage of each transaction for their business.
How Much Does It Cost To Buy Cryptocurrency At Exchanges?
What does it cost to trade bitcoin? Apart from the price of bitcoin itself, each: cryptocurrency exchange adds a fee for trading, when customers purchase and sell coins. These fees include Maker (which add to the order book liquidity through limit orders) and Taker (which subtract liquidity from an order book through market orders) fees. In some cases, cryptocurrency traders can incur maker as well as trader fees, if the limit order is already present in the order book.
Cryptocurrency exchanges mainly calculate fees in two ways: as a flat fee per trade or as a percentage of the 30-day trading volume for an account. In both cases, they’ve adopted a tiered structure that depends on the amount being traded.
- Buying and selling cryptocurrencies has become increasingly popular since bitcoin first debuted back in 2009.
- Dozens of online exchanges now exist to help buy and sell digital currencies as well as to trade cryptocurrencies against one another.
- The typical costs involved include trading commissions paid to exchanges, the width of the bid-ask spread, and a fee to transfer funds to/from your bank account.
Four Things To Consider While Trading On Cryptocurrency Exchanges
There are four important things that traders must consider while purchasing cryptocurrencies.
- First, cryptocurrency exchanges are unregulated in most jurisdictions. Most regulators in countries around the world have taken a hands-off approach to cryptocurrency regulation in some of its biggest trading markets. For example, cryptocurrency exchanges are governed by a patchwork of regulations in the United States among the largest markets for cryptocurrency trading. Some types of cryptocurrency trading are banned in China, which accounted for as much as 90% of overall trading up until the beginning of 2017.¹ Nonetheless, several prominent Chinese exchanges are still operational and have simply shifted base to Seychelles or Malta since the government crackdown.
- Second, fee schedules at cryptocurrency exchanges are designed to encourage frequent trading in large transaction amounts worth thousands of dollars. Fees often decrease with an increase in amount and frequency of trades. As such, small and infrequent orders are not cost-efficient at cryptocurrency exchanges. For example, some exchanges charge no fee for trades worth $10,000,000 and over.
- Third, exchanges encourage trading with coins. Fiat currencies generally incur deposit and withdrawal fees at exchanges, depending on the payment mode. But purchasing cryptos with other coins, for the most part, is free. In some cases, a small fee may be charged to set up a wallet for the required cryptocurrency.
- Fourth, most well-known cryptocurrency exchanges do not offer access to all coins. But, in many cases, traders can transfer funds from one wallet to another and fund their trading accounts using either fiat currencies or cryptocurrencies. For example, traders wishing to buy Cardano (ADA), a top-15 cryptocurrency by market cap, are not currently able to do so directly on the popular Coinbase exchange. However, traders can use fiat currency to purchase bitcoin at Coinbase. Binance, another exchange, already offers users the facility to import coins from other wallets. Once they have bitcoin in their Binance account, they can use it to buy ADA listed on the exchange. The transfer between multiple wallets at different exchanges incurs small charges at each end.
Here is a brief comparison of trading fees for bitcoin at the current list of most popular exchanges by trade volume. This comparison does not take into account margin and leverage fees.
Seychelles-based HCoin is one of the newest entrants into the cryptocurrency exchange field as of January 2020. Launched in August 2018, HCoin offers customers the opportunity to trade in a list of cryptocurrencies and fiat currencies including bitcoin, ether, XRP, litecoin, bitcoin cash, EOS, USDT, and HKDT, among many others.
HCoin’s fees are dependent on the base currency and volume and are listed in a chart on the exchange’s website. The company does not appear to list any fees for funding an account through transfer of digital assets from another wallet, nor is it clear whether the transaction fees change depending upon the size of each trade.
Estonian platform Coinsbit has a focus on security and on innovative offerings such as InvestBox, a low-cost, low-risk way for investors to make exploratory transactions involving new altcoins. When it comes to fees, Coinsbit charges a flat 0.2% fee for trading. The exchange also has variable fees for deposit and withdrawal, depending upon the cryptocurrency, and with different minimums for each token as well. As of January 11, 2020, the fee to deposit USD was 0.8% and the fee to withdraw USD was 0.4%. Some of the cryptocurrencies are free to deposit (i.e. ETH, ARK, ATB, and others), and others are free to withdraw.
Additionally, new accounts are initially prohibited from making withdrawals. Later, basic accounts have a withdrawal limit of USD$500 or equivalent per 24-hour period, while enhanced accounts can withdraw up to USD$100,000 or equivalent in a 24-hour span.
The third most popular cryptocurrency exchange by trade volume is BitForex, an exchange headquartered in Singapore and registered in Seychelles. BitForex offers a host of trading options, including margin trading, derivatives, and more. As such, this exchange has a more complex fee schedule than some of its peers on this list.
For spot trades, BitForex charges 0.1% for both maker and taker feeds. For perpetual trades, there is a maker fee of 0.04% and a taker fee of 0.06%. Discounted rates are available for specialized market maker accounts on the platform. Deposits to BitForex are free, while withdrawals vary depending upon the currency involved. There are also minimum and 24-hour maximum withdrawal levels associated with each cryptocurrency 6
Besides being a popular cryptocurrency exchange, LBank also supports innovation in the altcoin space through its “LBK Voting Listing” event, which pits 8 new cryptocurrency projects against one another for a chance to be listed on LBank for free.
LBank charges a taker fee of 0.2% and a maker fee of -0.05%, meaning that makers earn a portion of the generated trade fee on the transaction. Different cryptocurrencies are associated with various withdrawal rates set at fixed quantities of those cryptocurrencies themselves. For instance, a user withdrawing bitcoin from LBank will be charged a flat fee of 0.0005 BTC. There are also withdrawal minimums for each cryptocurrency that are also set as fixed quantities of the token in question. Interestingly, LBank does not indicate a maximum withdrawal over a 24-hour period.7
Including one of the most extensive lists of trading pairs, with more than 700 possible combinations P2PB2B regularly sees daily trade volumes close to $1 billion. Like Coinsbit, P2PB2B charges a flat 0.2% fee for trades. Users can deposit most cryptocurrencies, including BTC and ETH, for free. However, there is a charge of either 4% or 5% (with a minimum of either USD$5 or USD$10) to deposit USD into an account, depending upon the method of deposit. P2PB2B also sets minimum deposits and withdrawals in most cases and charges a variable withdrawal fee depending upon the cryptocurrency. Like LBank, withdrawal fees vary from token to token but are assessed as fixed quantities of tokens.
Best Crypto Exchanges
Investing or trading in Bitcoin or other cryptocurrencies can be intimidating at first. There is frequently news about scams and people losing money. While this is true, and many scams have happened and continue to happen, it has never been so simple to invest in cryptocurrency. So much has advanced in the last few years that have made crypto trading safe and easy.
The foremost concern when trading and purchasing Bitcoin, or other cryptocurrencies, is safety and security. Whether you intend to purchase and hold long term, want to trade frequently, are interested in anonymity or privacy, or simply want ease of use, the following exchanges are the best for any use case you may have.
This list covers the best exchanges for certain types of traders as well as the best exchanges within each type of exchange. There are a number of ways to go about investing in Bitcoin or other cryptocurrencies. To learn more about how the different exchange types differ, please read on after the list of exchanges. Once you have decided on an exchange, it is important to also practice safe storage. You can see the best storage methods on our best Bitcoin wallets article.