Crypto Brokers: What to Look Out for Before Trading Online

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Risk Warning: Your Capital is at Risk.

There are two main ways to speculate on cryptocurrency prices — you can trade them through a broker or buy and own them through an exchange.

When you trade cryptocurrencies with a broker, you’ll find various derivative products. Cryptocurrency trading on derivatives means that you don’t actually own the crypto coins — rather, you simply speculate on the price movement.

On the other hand, buying cryptocurrencies from an exchange means you own and hold the crypto coins.

On this page, we’ll tell you how and where you can purchase or trade cryptocurrencies in along with the advantages and pitfalls of each method.

Please Note: Availability subject to regulations. Cryptocurrency CFDs are not available to UK retail traders.

Where to Buy and Trade Crypto

It is important to distinguish between the products offered by cryptocurrency brokers and cryptocurrency exchanges.

Where you dedicate your trading funds depends on various factors, like:

  • Cryptocurrency coin types available: Whether a broker or an exchange offers the cryptocurrency you wish to trade.
  • Trade Term: How long you want to hold the position or crypto coin.
  • Ownership: Whether you want to own the coin or bet on the price movement without owning it.
  • Availability: Whether a broker or an exchange is available in your country of residence.

Let’s clarify the difference between using a crypto broker and a crypto exchange.

Cryptocurrency Brokers

Traders using brokers to buy and sell cryptocurrency derivatives contracts do not own the actual cryptocurrency. This is because cryptocurrency derivatives products are a form of speculative “betting.”

Since traders don’t own the crypto coins, they profit from the rise or fall of a particular cryptocurrency’s price. These derivative products include:

  • Crypto CFDs: Contracts-for-difference (CFDs) that allow traders to speculate on the rise or fall of a digital asset’s price. The trader can close to contract at any time, although the margin requirement of the broker determines the possible range of the trade. Other common CFD products include commodities like precious metals.
  • Crypto futures: Traders enter an agreement with the broker where they are obliged to buy or sell a cryptocurrency at a specified price at a future date when the contract expires.
  • Crypto options: Much like futures, but instead of an obligation to buy or sell, options allow the trader to withdraw from the contract at the expense of losing the options premium (a deposit that essentially pays for the option to withdraw).

To learn more about how contracts-for-difference (CFDs) work, see this Guide To CFD Trading.

Cryptocurrency Brokers in

Finding a regulated broker to trade legally in your country can be tough.

We’ve made it easier by tailoring our results specifically for residents of in the following broker comparison table:

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 53.00%-83.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.

Please Note: Availability subject to regulations. Cryptocurrency CFDs are not available to UK retail traders.

Cryptocurrency Margins: When trading cryptocurrencies with a broker, watch out for margin limits. The margin requirements determine how many crypto coins you will need to either open a trade, keep a trade open, avoid liquidation, or undergo an automatic contract termination (margin call).

Cryptocurrency Exchanges

When you sign up with a cryptocurrency exchange, you are entering a marketplace where you own what you buy. It’s a digital marketplace that buys and sells selected cryptocurrencies.

Exchanges may also offer built-in wallets where you can store your Bitcoin, Ethereum, Dash, Bitcoin Cash, IOTA, Litecoin, NEO, or other valuable cryptocurrencies.

Exchanges offer the largest variety of cryptocurrencies, typically more than brokers.

Cryptocurrency Exchanges In

These are some of the most popular exchanges, platforms, and services that give users access to buying and selling cryptocurrencies:

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Exchange Fees

Exchanges may charge multiple fees, two of the most common ones being trading fees and conversion fees.

coinbase dashboard
This screenshot is only an illustration. Current market prices can be found on the broker website.

For example, Coinbase charges:

  • Average spread: 0.5% on cryptocurrency trades (variable spread)
  • Margin: 2% on cryptocurrency conversions
  • Transaction fee: 1.49% to 4.00% on credit/debit card payments
  • Bank transfer fee: Up to $10 on single transfers

Brokers also make money on trading fees and spreads, which vary from platform to platform.

Other Ways to Buy Cryptocurrencies

Aside from crypto exchanges and brokers, there are other ways to purchase and own cryptocurrencies.

  • LocalBitcoins.com: Some crypto traders prefer to conduct person-to-person (P2P) transactions, a form of private trading. LocalBitcoins.com facilitates such P2P trades online, or in person. They offer a variety of payment methods from cash to credit cards, bank transfers, and e-wallets.
  • Private Transactions: Some people buy and sell cryptocurrencies completely privately without a third-party.
  • Crypto ATMs: Traders can purchase cryptocurrencies with cash or a debit/credit card from a physical ATM. According to CoinATMRadar.com, there are currently over 8,000 registered crypto ATMs worldwide.

How To Avoid Cryptocurrency Scams

The older cryptocurrencies get, the easier it is to spot certain types of scams, but traders should always be cautious. Many attempts to scam traders may come across as professional services.

The most common cryptocurrency scams appear on:

  • Fake websites
  • Social media
  • Phishing
  • Unregulated exchanges

Tip: Be extra mindful of scams when conducting P2P trades. See this Scam Avoidance Guide for more information.

Fake Websites

These websites can appear in the form of a cryptocurrency exchange, a cryptocurrency broker, or even fake cryptocurrency gambling pages. They tend to clasp their victims with too-good-to-be-true freebies and bonus offerings.

Social Media Scams

Social media accounts with seemingly large follower bases can pose as legitimate cryptocurrency service providers. Again, unrealistic freebies and large bonuses are a typical way of attracting targets.

A recent 2020 attempt saw high-profile Twitter accounts hacked, posting about Bitcoin giveaways.

Phishing Scams

Phishing is one of the oldest digital scams. Cryptocurrency phishing scams may target a users’ mobile phone, e-mail, or even physical postal address.

While your data is safe with most regulated brokers and exchanges, some exchanges may suffer data leaks, through which your personal information can get in the hands of phishers.

Unregulated Exchanges

The most convincing scam of all involves unregulated exchanges. These sites appear to provide the same services as other exchanges do, but they lack the appropriate legal standing to operate.

Since many cryptocurrencies are difficult to trace, it is far easier to set up a cryptocurrency exchange that doesn’t take your consumer rights into account.

FAQs

What is a cryptocurrency broker?

A cryptocurrency broker offers derivatives products to traders, where traders enter contracts to speculate on the price of digital currency. Cryptocurrency derivatives include crypto options, crypto futures, and crypto CFDs. When trading with a cryptocurrency broker, you do not own the asset itself, only the right to buy or sell the underlying contract as the prices change.

Do I need a broker to trade bitcoin?

No, you do not need a broker to trade Bitcoin (BTC). You can trade Bitcoin by visiting a trusted cryptocurrency exchange that offers Bitcoin and trade it without a broker. Alternatively, you can seek out a cryptocurrency broker that offers a derivatives product of interest. You can also trade Bitcoin privately without a third-party.

What is the difference between a cryptocurrency exchange and a broker?

With cryptocurrency exchanges, you buy the crypto coins and own them outright, while cryptocurrency brokers act as a mediator for you to bet and speculate on price movements of crypto assets. Cryptocurrency brokers tend to undergo stricter scrutiny and regulation since they also offer FIAT trading products and derivatives, while cryptocurrency exchanges are still in a regulatory gray zone.

Read more about the differences between exchanges and brokers.

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