What is a bitcoin exchange?
A bitcoin exchange is a marketplace where you can buy and sell bitcoin. On exchanges you are able quickly and easily to trade fiat currency (such as GBP and USD) for cryptocurrency, and to trade different cryptocurrencies for each other. Some exchanges such as Wirex are built with a user-friendly interface, making them attractive for beginners, whereas others such as Bittrex and Binance come with a more advanced interface for more experienced traders.
How do exchanges work?
There are two main ways you can trade bitcoin on an exchange:
- Market orders. With a market order, you buy or sell bitcoin at the best available price at that time on the exchange. Since the purchase is usually instant, market orders are the fastest way to buy and sell bitcoin.
- Limit Orders. With a limit order you set the price at which you want to buy or sell your coins and the transaction automatically goes through when bitcoin hits that price. If you think the value bitcoin is going to fall, then you can set a limit order to buy at a lower rate and get more for your money.
How do I use a bitcoin exchange?
To use an exchange, first you have to set up (and usually verify) your account. Once you’ve done this you can either connect your card to that account or top it up by paying directly into the account. After you have done this there’ll be an option to buy bitcoin: choose your payment method and buy the coins.
Depending on your preferred buying method, the period during which your account will be credited will vary. For instance, exchanges such as Wirex credit your account instantly when you buy bitcoin using a credit card, but could take 3-5 days if you use bank transfer.
What should I look for in a bitcoin exchange?
There are a number of factors to consider when choosing which exchange to use, these include:
Payment methods accepted
Not every exchange will accept the same forms of payments. Most of them will accept credit cards and bank transfer, but some such as Binance and Bittrex will only allow you to trade with different cryptocurrencies. One thing to note is that it’s particularly hard to find exchanges that accept PayPal. Make sure you use an exchange that lets you pay how you want to make it more convenient for you.
This is one of the most important factors in choosing an exchange, as it directly affects the amount you’ll be paying. Exchanges usually charge maker (selling) and taker (buying) fees, and they vary from one exchange to another and the volume of your trades. These rates usually fall somewhere between 0.1% and 1.25%. Getting the most bitcoin for your buck means finding an exchange with a low rate
Not all exchanges are freely available in all countries. Platforms such as Binance are available in almost every country, whilst Wirex is not available in the US. Check that the exchange you want to use is available where you are before creating an account.
The fees vary from exchange to exchange, and will often depend on your payment method. Most sites will charge around 1% – 5% when you buy using credit card and around 2% when you use bank transfer. When choosing an exchange, make sure that your profits aren’t being too dented by the fees charged.
Design and ease of use
An important consideration when choosing an exchange is how well designed the site is. For instance Wirex comes with a user-friendly interface to help beginners buy and sell bitcoin, whereas other sites such as Binance are designed for more advanced users, displaying complicated graphs, cryptocurrency price & charts and allowing different trading tools. You want to be able to focus on buying the coins, not figuring out how the site functions, so find an exchange you’re comfortable using.
Do I have to verify my account on an exchange?
Yes, you’ll have to verify your identity when signing up to an exchange. You will usually be asked to provide 2 forms of ID (such as a passport or driving license) and often a selfie of you holding one to prove it’s yours. Platforms such as Bitstamp and Bitpay may also ask you for further verification documents like bank statement or utility bill to confirm your address.
Are bitcoin exchanges secure?
Bitcoin exchanges have many security features, but are a big target for online attacks. There have been cases whereby exchanges have been hacked and millions of punds worth of cryptocurrency stolen by hackers, such as with the Mt Gox exchange in 2014. It is therefore not recommended to hold more than a small amount of bitcoin at a time on an exchange account. Instead, transfer your coins to a personal wallet to keep your coins safe.
If you buy a large amount of coins as a long-term investment, consider using a hardware wallet or paper wallet for extra security. If it’s a small amount that you intend to access regularly then it might be best to get an online wallet.
What if I forget my password?
This will depend on the platform, but usually exchanges will have steps to reset a forgotten password through the email address/security questions you registered when setting up your account. You just need to initiate reset password and a link will be sent to your email address to help you set up a new one. Your exchange account has access to your bitcoins so it’s important to choose a secure password that’s not easy to guess.
How fast are transactions on bitcoin exchanges?
For the most part, transactions on bitcoin exchanges are instant. As soon as you make the payment, the bitcoins will be in your account immediately for trading. This is not necessarily the case when moving your bitcoins between exchanges, which will take slightly longer as it has to be verified on the blockchain. Exchanges such as Binance will credit your account after two blockchain confirmations, which can take a few minutes.
If you place a limit order then the transaction will only go through once bitcoin hits the value at which you have selected to buy/sell. At this point, though, the transactions speeds will be the same as with market orders.
What payment methods can I use to buy bitcoin on exchanges?
This depends on the exchange you intend to use. Typically debit card and bank transfers are the most commonly used methods of payment. Some exchanges will also accept credit cards or PayPal payments, but this is less common. If you’re using an exchange that supports many different cryptocurrencies, you can also use your other coins such as litecoin or ether (Ethereum’s cryptocurrency) to buy bitcoin, and vice-versa.
Do exchanges charge fees for buying and selling bitcoin?
Yes, exchanges will have fees for making transactions, especially if you’re buying your coins directly with your card. Typically these will be between 1% and 5% depending on the platform, the payment method, and how much you’re spending. If you intend to trade a large amount, you will typically pay lower fees than with a smaller number of coins.
You can often avoid fees completely by transferring money into your account via bank transfer and using that money to buy bitcoins.
And do they charge fees for transferring in and out of my account?
When transferring coins to another wallet or exchange, you will be charged the transaction fees associated with the Bitcoin blockchain (also known as miners’ fees). These vary depending on the amount of transactions happening at that time, but the fee is usually around 0.2 mBTC (an mBTC is one thousandth of a bitcoin).
When it comes to withdrawing fiat currency (such as GBP or USD), exchanges usually charge depending on the payment method to which you’re withdrawing. The range is usually around 1% – 4%, with the lowest rates charged when using bank transfers.
Do I need a bitcoin wallet to use an exchange?
No, you don’t. Usually exchanges come with integrated wallets to hold a variety of coins, so you will have an account that holds your coins. However, it is strongly recommended that you transfer your bitcoins from your exchange account to a personal wallet if you’re not intending on trading them soon, or want to hold a large amount of them. It’s safer not to store your coins on an exchange.
What are the other platforms that I can use to buy and sell bitcoin?
The other commonly used platforms are brokerages and CFD trading platforms. Brokerages manage your buying and selling of bitcoins on your behalf and get a small commission as a percentage of total amount (but these fees are included in the advertised price of the coins), whereas CFD platforms are more focused on allowing you to make quick trades to capitalise market fluctuations.
Should I use a bitcoin exchange?
Well, it’s up to you. If you want an easy way to buy and sell bitcoin with either fiat currency or another cryptocurrency, then an exchange will be a perfect platform to do so. You can also look into brokerages and CFD platforms if you’re still unsure.
Where can I find the best exchanges?
We have them right here. We’ve compared all the exchanges out there to find the best, and reviewed them in depth to ensure that you can find the right exchange for you. Go ahead and check them out.