What is a cryptocurrency exchange and how do they make money?

A cryptocurrency exchange is a place where you can trade cryptocurrency. They allow you to buy and sell cryptocurrency through their platform in exchange for a fee. They will store your cryptocurrency on their own shared wallet (this is not recommended, read our review guide on cryptocurrency wallets to for more information on this) and you can access it anytime that you need it.

How do cryptocurrency exchanges make money?

When you trade any assets through a traditional broker or finance house, they charge you a transaction fee. This is known as the spread. If you are buying Bitcoin for example, the price that they would quote you would be slightly higher than the actual spot price of Bitcoin. The difference between the two is the spread which is the profit to the exchange. The same is true if you were selling your Bitcoin. They would quote you a slightly lower price than the spot price of Bitcoin. In this way, whenever you make a transaction they make a profit. The greater amount of currency that you trade, the more money they make.

Most exchanges also charge a commission per transaction in addition to the spread. Depending on the exchange, you can be charged a fixed transaction and a variable transaction that depends on the amount traded. This is particularly important to note for arbitrage traders who take advantage of the difference in quoted prices between exchanges. If you don’t transfer enough you can actually lose money because the fixed commission can be more than what you make off the arbitrage. When doing arbitrage trading it’s very important to know your numbers exactly before you trade so that you actually make a profit. Arbitrage trading between exchanges generally  can only be profitable if you trade an amount of $1000 or more.

 

What are the best cryptocurrency exchanges?

Deciding on the best crypto exchange is not a straight-forward task. There are many things to consider. How safe is their server and website? Are they a credible exchange and do they have a good reputation? What forms of deposit do they accept and what are their commissions like? These are just a few of many important questions you should ask yourself when choosing an exchange. Below we will list just 3 exchanges that we personally use and believe are very reputable exchanges:

SiteLocation +CurrencyBeginner FriendlyWebsite
etoroLondon, USDtable_yesVisite site
coinbaseSan Francisco, USD EUR BBPtable_yesVisit site
cexLondon, USD EUR GBP RUBtable_yesVisit site

As mentioned, these are only 3 of many reputable exchanges out there, but they are 3 that we believe to be good. As a beginner starting out, they are easy to use and you can get started with very small amounts of money. As always, if you have any questions, feel free to contact us. Safe trading!

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