Crypto Trading 101: Identifying Safe (Or at Least Safer) Cryptocurrency Exchanges

Before you take the plunge, take the time to do a series of background checks on the exchange you're thinking of using. Some have much stronger protections and better reputations than others.

Those interested in dipping their toes into Bitcoin, Ethereum or other emerging currencies first need to do some digging into which exchange they will use in this investing Wild West. Choosing the wrong exchange could possibly mean losing all your coins and money due to a security breach or because the people behind the exchange are fraudsters.

Reliable exchanges on the other hand have certain characteristics that you should be looking out for, such as following KYC and AML procedures, reasonable and no hidden transaction fees, and an overall positive online reputation. In this article you will learn what you need to know in order to be able to identify the most reliable coin exchanges, once you've decided to add cryptocurrencies to your investment portfolio.

Beware of Unregulated Cryptocurrency Exchanges

Cryptocurrency exchanges allow investors to trade bitcoins and altcoins for other digital currencies or fiat money, like dollars or euros. The exchange platform either charges a fee for every transaction or takes the bid-ask spread as a commission.

Because cryptocurrency exchanges are mostly unregulated, investors need to be cautious about registering with an exchange. Safety and security issues are real. These are some of the primary concerns related to regulation:

  • Many platforms refer to themselves as “exchanges,” so they may appear to be registered with the SEC (U.S. Securities and Exchange Commission). Most are not. And though they call themselves “exchanges,” they do not meet regulatory standards set for either national securities exchanges or alternative trading systems (ATS). According to Reuters, there are dozens of unregistered crypto trading platforms in the United States.
  • The SEC does not evaluate which cryptocurrencies are safe investments and which are not.
  • Since trading tools like limit or stop-loss orders are not reviewed by a regulatory authority, they cannot be guaranteed to work as intended, and big investors may receive preferential treatment.

The good news is that the SEC has begun cracking down on suspicious looking ICOs (Initial Coin Offerings) and addressing platforms that might potentially be operating illegally or involved in market manipulation.

Knowing What to Ask

The SEC has recently published a new statement: “Potentially Unlawful Online Platforms for Trading Digital Assets.” It includes a list of questions for investors to get answered before trading in digital assets on these exchanges.

Here is a sampling of the questions:

  • Do you trade securities on this platform? If so, is the platform registered as a national securities exchange?
  • How does the platform select digital assets for trading?
  • Are platform users treated equally?

You can read the full list of questions online.

It’s also important to find out:

  1. Who you are contracting with, i.e., what company or people are behind the specific cryptocurrency or ICO you’re interested in? Are they licensed to sell the product? Where are they located?
  2. How long the exchange has been in operation and is it operating smoothly, even when the trading volume peaks? Have there been system crashes and trading halts in the past?
  3. What will your investment be used for?
  4. Does your investment come with specific rights?
  5. Do you lose access to your investment if you lose the key to your digital wallet?

What to Look for in a Reliable Exchange

Obviously, all exchanges are not created equal. These are the factors to consider and features to look for in a reliable cryptocurrency exchange:

Where the Exchange is Based

Funds to purchase a digital currency are wired to the country in which an exchange is based. Some banks may reject transfers to foreign countries, even with a licensed platform.

Insiders also warn against trading on exchanges based in countries without protection for customers. Places like Europe and the United States have at least some level of regulation; many countries don’t have any.

Know Your Customer (KYC) & Anti-Money Laundering (AML) Procedures

Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures are part of the Patriot Act to “help the government fight the funding of terrorism and money laundering activities.” U.S. financial institutions and regulated companies need to know who they’re doing business with and are required to collect basic identity information for all business relationships. Consider it a red flag if an exchange does not request KYC and AML procedures, such as asking for your driver’s license or passport. In a KYC control, your name is then matched against lists of known parties and your behavior is monitored.

It’s essential that coins are stored securely, which means security is a top priority for a reliable exchange. Unfortunately, not all cryptocurrency exchanges provide equal security. At this point, it’s questionable whether any provide optimum security. So take due diligence in finding the most secure exchange for your cryptocurrency, but also implement precautionary measures for your own account.

Adding a two-factor authentication (2FA) processes, like a password plus an expiring code sent to a smartphone, creates an extra level of security, known as multi-factor authorization. Using encrypted email verifications to confirm every transaction and backing up digital wallets are also key security measures cryptocurrency investors can take.

Another important option for securing digital wallets is cold storage. Cold storage allows coins to be stored safely offline, out of reach of cyber attackers.


In the cryptocurrency world, liquidity refers to the number of buyers and sellers actively trading in the market. You can’t sell your Ethereum coins (or any other coins) without a buyer, which makes large, popular exchanges with plenty of buyers and sellers better than smaller exchanges with less liquidity.

Reasonable Fees

Transaction fees add up for active traders. The difference between paying 0.1% versus 0.25% in fees for each trade can be considerable for investors making multiple trades.

Also, be aware of hidden fees applied for each fund deposit and withdrawal. Some fees are based on volume, which is preferable at least for smaller investors. If you want to execute larger trades, then fixed fees will likely the way to go.

Positive Trader Feedback

Know what other traders on a given exchange are saying. If existing customers are having a problem with a particular exchange, you want to know what it is. If an exchange has been getting lots of positive feedback, you want to know that, too. Twitter and forums like Reddit or the Bitcoin Forum are a great source for finding customer feedback and experiences.

Good Customer Support

Responsive and helpful customer support saves time and headaches when you’re having problems with transaction verifications, deposits, withdrawals and trading orders. You want an exchange that has easily accessible, responsive and competent support. Online forums are a great way to find out about an exchange’s customer support.

History of Cyberattacks?

Be aware of past cyberattacks on coin exchanges. There have been plenty, but just because a platform has been hacked once doesn't necessarily mean that it will be hacked a second time. Nor should you conclude that if an exchange hasn’t been hacked yet, it’s inevitably more secure than others.

The key here is to look out for appropriate security measures. Some of them are listed above.

Coin Pair Options?

A coin pair or trading pair is a trade between two different cryptocurrencies where no fiat money is involved.

The problem is that many exchanges are limited to the most popular coins — Bitcoin, Ethereum and Litecoin. Investors who want to trade lesser-known coins, need to find an exchange where that's possible. Do remember, though, to do your due diligence and not invest in any coins blindly. It’s advisable to stick to the more familiar currencies.

Mobile Access?

Not all exchanges offer a mobile app that allows smartphone trading and price tracking. If that’s important to you, make sure to select one that can accommodate your smartphone needs.

Popular Exchange Platforms

If you’re ready to investigate cryptocurrency exchanges on your own, Investopedia contributor Prableen Bajpai has done a thorough and insightful analysis of the most popular Bitcoin exchanges. Her list includes:

  • Bitstamp (Slovenia) has a strong reputation, is professionally managed, has sound audits, regulatory compliance, and volume-based fees.
  • Bitfinex (Hong Kong) is the largest platform by trade volume with advanced trading tools. 99.5% of its assets are stored offline.
  • Coinbase (California) is well-suited for beginners but not for day trading. It has no advanced trading tools. Transactions fees are volume-based (1%).
  • Cryptsy (Florida) lists more than 200 different cryptocurrencies and more than 270,000 registered users. Fees are volume-based (0.2%-0.3%).
  • BTC-e (Bulgaria) offers many coins and cryptocurrencies for trade and has varying volume-based fees.
  • Kraken (California) is well-suited for both beginners and advanced traders. It emphasizes audits and compliance.
  • Bitcoin Source (Belize) allows credit card payments, cold storage and high-speed transactions. Fees are volume-based (1%).

Jonas DeMuro at includes CoinBase, Gemini Exchange, Changelly and Cryptopia on his list of top Bitcoin exchanges for 2018.

DeMuro does a good job covering the advantages and disadvantages associated with each exchange.


A lot goes into identifying a reliable and — at least to a certain degree — safe cryptocurrency exchange. One thing is for sure, it's important that you do your own research in advance. Furthermore, you have to know what questions to ask and what features to look for. Exchanges based in the U.S. must follow KYC, as well as AML procedures and must be registered with competent authorities. Social networks and forums are probably the best way to learn more about the customer experience with specific platforms.

About the Author

Marguerita M. Cheng, CFP®

CEO, Blue Ocean Global Wealth

Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠, Retirement Income Certified Professional and a Certified Divorce Financial Analyst. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.

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