Cryptocurrencies are making it easier for people to invest and get exposure to a new form of investment. Users tend to use cryptocurrency exchanges to purchase crypto; however, experienced traders who want access to more complex financial instruments such as margin trading or different pairing use a broker to meet their financial needs.
Brokers are used for short-term investments because they offer additional investment tools. At the same time, exchanges are ideal for newcomers or everyday crypto investors.
Registration and verification
Registration and verification processes are straightforward and are similar for both exchanges and brokers. Traders can register to exchanges with just their e-mail address. Exchanges that also allow FIAT deposits require a KYC verification and the standard processing time is below 24 hours. Similarly, traders who register with a broker need to undergo a verification process because brokers are subjected to government regulations.
Deposits & withdrawals
Traders can deposit and withdraw both fiat currency and cryptocurrencies on exchanges. Still, they are subject to high fees, especially when depositing FIAT using bank transfers or debit cards. In addition, when withdrawing to a bank account or credit/debit card, fees can be higher than depositing fees. However, traders can opt to deposit and withdraw crypto, which substantially decreases the fees.
On the other hand, brokers are at a clear advantage because they don't charge deposit fees and offer more options than exchanges. However, withdrawal fees can range between 0% to 3%, while fees on exchanges can be as high as 6%.
Trading
But the difference between the two forms of trading is their offerings. Exchanges offer simple order book trading opportunities that average users can understand, and exchanges have added new instruments such as futures or swaps. On the other hand, brokers have a more complex choice of investment tools, offering traders exposure to crypto through CFD trading or derivatives and providing traders with an analytics toolkit.
Security
Cryptocurrencies exchanges are still vulnerable to security breaches. For example, the Mt. Gox or Kucoin hack demonstrates that no exchange is safe from bad actors, including Binance. Although exchanges are not singled out by bad actors, brokers have a higher degree of security because they are regulated and audited by a governmental authority and use banks as custodial accounts to increase fund security.
That said, brokers typically attract users with higher capital, while exchanges have a broader target audience, focusing on all income levels as they offer exposure to more crypto pairings.
| Broker | Exchange | |
|---|---|---|
| Liquidity | Deep | Average |
| Features | For experienced users | For average users |
| Number of cryptocurrencies | Low | High |
| Spread | Tight | Wide |
| Regulated | Yes | Depends on location |
Conclusion
Choosing between a cryptocurrency exchange and a broker depends on the type of investments traders want to make and the amount of capital they plan to allocate, although both options have their perks.
Soft-FX can help you get your crypto business endeavor underway. Our solutions fit the needs of both exchanges or brokerage accounts.