As Bitcoin and other cryptocurrencies have become more mainstream, the number of options investors have to buy, sell, and trade has increased. Today, there are many different ways to invest, and brokers and exchanges are two of the most widely used.
Brokers vs. Exchanges
Brokers and exchanges aren’t anything that’s been invented specifically for cryptocurrencies. They both predate cryptocurrency by a wide margin and developed long before the internet or even electricity. They see use in trading of all kinds, from stocks to foreign currencies.
A broker is a firm or an individual that investors approach for their services. When you work with a broker, they make trades and hold assets on your behalf. Basically, they handle everything. If you’re working with an individual broker, you can simply call them up and tell them to buy however much in Bitcoin, with no need to manage any of the technical details.
Online brokers are also available now but still differ from exchanges. You’ll have an account with the broker, but in most cases, they’ll still be the one holding your assets. Many brokers offer additional services like professional advice. They can also enact trading strategies on your behalf.
An exchange is simply an intermediary that connects buyers and sellers. If you think of the stock market, you might imagine a room full of investors shouting over each other about what trades they’d like to make. That’s the earliest type of exchange. Today, the process is a bit more straightforward, thanks to the advent of computers and the internet.
When you go to buy a specific cryptocurrency through an exchange, they link your buy order with a sell order at the current market price. They also charge an additional percentage for doing so. Exchanges are much more self-directed, with the investor being responsible for all decision-making and trading.
Why Do People Need Brokers and Exchanges?
Brokers and exchanges both make trading easier. However, you don’t absolutely need them to trade crypto. If you don’t want to spend anything on broker or exchange fees, you can carry out trades completely on your own.
However, doing so would be a major challenge. First, you need to find a specific individual willing to buy or sell a given amount of Bitcoin at a specific price. Then, you’re going to have to work out who is going to fulfill their end of the deal first. If you’re buying, you can give them an amount of cash, and they can agree to send your Bitcoin wallet a certain amount of Bitcoin, or vice versa for selling.
Of course, this is much less convenient than either brokers or exchanges. There is also the fact that you’ll need to find someone trustworthy to trade with. To be totally safe, you’ll have to make a contract between the two of you, and now you’re entering into a much more difficult arrangement than simply going with a broker or exchange.
Choosing Between Crypto Brokers and Exchanges
If you’re interested in trading cryptocurrencies, you’re going to have to choose between using a broker or an exchange. Both have advantages and disadvantages and could be the right choice for different traders.
A broker is better for beginners. You don’t really have to know anything about cryptocurrencies to start trading. In fact, you might not even need a specific crypto broker. Many regular investment brokers offer crypto as well, alongside stocks, funds, and other assets. They’ll be able to provide you with advice and guidance as well.
The downside to brokers is that they can cost more. You’re paying for services from a professional, and the price reflects that. However, you won’t have to worry about getting caught up in any of the technical difficulties of crypto trading.
An exchange can be a versatile tool for more experienced traders. You can gain quick access to many cryptocurrencies with lower fees than a broker. However, exchanges aren’t particularly friendly to newcomers. It’s also important to point out that there are some services like “Immediate Edge” that try to convince potential customers that they are legitimate crypto exchanges. However, according to industry watchdog website ScamCryptoRobots.com, this is far from the truth.
You’re going to have to set up a crypto wallet that you’ll be wholly responsible for. You’ll also have to learn how to make trades on your own and how to use tools like stop losses.
Both brokers and exchanges are good options for crypto traders. If you’re new to this area, then a broker could be best for you, but experienced traders can achieve better margins by sticking with an exchange.
David Prior
David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.
