One of the things an experienced or newbie in the crypto market should know is that there are two main ways of trading cryptocurrency. It is either you trade with a crypto exchange or a crypto broker. The difference between these two may not be certain, but crypto traders should understand the basics.
What is a Crypto Exchange?
A crypto exchange performs activities just like a stock exchange. It allows sellers and buyers to trade based on the current market price of cryptos. A crypto exchange acts as an intermediary when trading crypto for which a transaction fee is charged. Although crypto exchanges are the common choice for the average crypto trader, larger amounts are less feasible with them.
What is a Crypto Broker?
A crypto broker is a preferable option for larger volume trades. Instead of trading a client's fund through a centralized exchange known as Over the Counter (OTC) market, a crypto brokerage trades the funds via a dealer network. Brokers identify sellers and buyers holding a large volume of crypto and connect them for the sale. This process is convenient and more flexible.
Differences Between a Crypto Exchange and a Crypto Broker
A comparison must be made to better understand the difference between crypto brokers and exchange. The comparison is easier when their common aspects are put under the microscope. Here are some of their differences:
1. Sign up and verification
The signup process to crypto exchange is fairly simple and easy. It involves confirming your email address and creating a new password for your account. A verification process is required to enable you to deposit and withdraw funds from your account after signing up. In some instances, this verification process is not needed.
It is also relatively simple to sign up with a crypto broker. However, account verification is compulsory to enable you to deposit funds and begin trading. The requirements for verification of an account with a broker may differ for different jurisdictions. Verification is much faster with a crypto broker than an exchange, and you can begin activities once your account is verified.
2. Deposits and withdrawals
It is difficult to deposit fiat currencies to crypto exchanges. Buying crypto is mostly needed to deposit fiat money with exchanges. Even at that, transactions are accompanied by high commissions and fees. It is also time-consuming to withdraw funds in fiat currencies from an exchange.
By contrast, it is much easier to deposit money with a crypto broker. The whole process is simpler as clients can deposit funds using their e-wallets, debit or credit cards, etc. Additionally, transaction fees and commissions are more attractive with a crypto broker than an exchange.
The task of trading with a crypto exchange is simple. Most exchanges allow clients to do both a market order and a limit order. Each exchange has different liquidity which depends on its Depth of Market (DOM). However, there is a smaller spread between sell and buy orders if the liquidity is higher.
A crypto broker on the other hand provides more than the basic function of an exchange. Derivatives and Contract for Difference (CFD) are some of the additional tools they provide for trading margins. Some of the other tools they provide can help client optimize their risk management and improve their performance.
The source of income of both a crypto broker and exchange has similarities and differences. They approach their clients differently, but they both profit from the fees. The fees that crypto exchanges charge for trade, withdrawals, and even deposits are higher. Unlike exchanges, the trading and withdrawal fees offered by a broker is lower.
Both crypto exchange and broker are very important in the crypto market. Trading on any of these two platforms has its drawbacks and benefits. You must research any exchange or broker you intend to trade with before committing to their service.
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