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Traders are very fond of investing in cryptocurrencies, as the market has shown in recent years. However, often those who approach this world do not have a high level of investment experience, and, for this reason, it is necessary to pay attention to the choice of the trading method.
There are several ways to trade cryptocurrencies, from specialized exchanges to financial brokers. Today’s article will discuss the latter category, highlighting the main factors that one needs to observe to choose a good crypto broker.
Given many operators on the market, an investor of average experience may have difficulty choosing the best option. The purpose of this analysis is precisely to provide readers with the tools to move in such a populated market.
Financial broker: a definition
Before delving deeper into the matter, it is essential to understand exactly what a financial broker is. You can think of a broker as an honest intermediary that allows you to access the financial markets.
It is possible to trade listed securities through a financial broker, such as stocks, bonds, ETFs, etc. Given the tremendous popularity that investments in cryptocurrencies have registered over the last few years, many brokers are starting to allow access to this sector.
Through brokers, however, you typically don’t own cryptocurrencies. Therefore, we will provide more information in the following section.
Crypto exchanges vs brokers – Main differences
Think of exchange as an online portal that you can use to trade cryptocurrencies. Once you create an account on an exchange platform, you will see that the website will open a crypto wallet with a unique address for you.
Usually, you can deposit fiat money on the exchange portal, allowing you to carry out the first cryptocurrency purchase operations. You will then notice that these platforms also offer swap services, i.e., conversions between different coins. In addition, exchanges can provide various services that crypto enthusiasts appreciate, such as NFTs trading, stacking, etc.
Generally speaking, those who work with a financial broker do not own cryptocurrencies, but they can still operate on this market. This mechanism is implemented through derivative instruments known as “Contracts For Difference” (or CFD).
CFDs can have the market quote of a coin as a benchmark, and they tend to have price variations similar to those of the reference crypto.
Therefore, those who operate through a broker will not see the operator’s opening of a crypto wallet. Instead, the broker acts as a mere intermediary, allowing speculative operations in this industry.
Is it better to use a crypto exchange or a financial broker then? Unfortunately, the definitive answer does not exist since both choices present pros and cons.
Exchanges appear to be a good choice for anyone who wants to take full advantage of crypto-related services. Brokers, instead, offer the chance to differentiate your investment by combining cryptos with traditional financial assets.
Finding a regulated broker
The derivative market is a remarkably complex world in the financial universe. As brokers let you trade cryptos through CFDs, you should be aware of the risks in the operation. Therefore, the first thing one should look at when choosing a broker is whether the company follows the legal regulations.
Typically, you will observe how all of the major brokers on the market share details on the financial institutions that regulate them. In such a complicated context as the crypto-derivative market, ensure that the chosen broker is fully regulated in your geographical area.
While “regulated” does not mean “safe”, you can generally count on the financial regulator to intervene in case of anomalies in the broker’s activity.
Other aspects to consider
After making sure your broker is following regulations, you will need to consider other aspects, such as:
Level of fees
Different brokers ask for additional fees. We all need to know how much investment will cost us over the long term, from trading to extra-trading operations. CFDs typically come with a daily price just for holding the position and, while this cost is generally low, we need to take it into account.
Deposit and withdrawal operations also generally come with a cost, which may vary depending on the payment method we select.
Number of cryptos
Most financial brokers have only recently started offering crypto CFD trading. Consequently, you will see how their number of available cryptos is generally low. Next, think of the coins you probably want to invest in if you’re using a broker to handle your crypto investments.
Major cryptos, such as BTC and ETH, are typically available with most financial brokers. However, if you plan to invest mainly in altcoins, you may find that only a few companies allow you to do this.
We never think about it, but when a problem arises, customer support is fundamental. Moreover, it may ultimately differentiate a great broker from a below-average one.
Make sure that the customer support of your broker is professional and easy to reach. You can never know when you need help to sort out an issue.
What can we conclude?
The constant appearance of new companies in the financial brokerage sector should bring healthy competition to the market. However, this factor also poses difficulties for the trader when selecting the best alternative in the industry.
Keeping in mind that investing is a complex operation requiring knowledge and experience, it is fundamental to find a regulated broker before trading crypto CFDs. Following this step, you will need to analyze the fees and the investment alternatives without forgetting the importance of excellent customer support.