Where to trade cryptocurrency: broker vs crypto exchange — DotBig review

Crypto trading itself involves high risk. Consequently, it’s recommended to pay a lot of effort and attention to finding a trading platform that will protect you from fraud and other types of risks, which don’t even relate to the trading process. Taking into account the peculiarities of hundreds of trading platforms, which option would you prefer — a broker or an online exchange? Let’s explore the key peculiarities of such platforms and find the most beneficial option for an average crypto trader.

broker vs crypto exchange

Introduction to a crypto broker

Actually, we cannot say that there are some brokers that specialize in day trading cryptocurrency. In most cases, you won’t find a purely virtual currency broker. These are just intermediaries presenting different financial products, and the crypto market is just one of the offered options. This means that crypto isn’t the niche of specialization for such trading platforms. Virtual coins just form one more group of assets similar to currency pairs, stock products, binary options, different variations of funds, and so on.

Usually, with crypto brokers, you can make money in two different ways:

1. Speculation on price rate fluctuations. This is the most popular way to earn on crypto through the intermediary of forex brokers. In a nutshell, this is CFD trading. This is the process during which you don’t own actual assets but rather speculate on the value gap formed between the sell and buy prices. The principle of CFD work differs from other trading instruments. When trading CFDs, buyers cannot gain the product itself, they can only earn the difference if the closing cost of the asset is higher than the opening one. If the situation is the opposite, the reward is paid by the buyer to the seller.
2. Investing. In this case, traders do own underlying coins. Some multi-asset brokers offer their clients to buy coins and hold them in special electronic wallets. When the price for a virtual asset moves higher, a participant can sell it. Because of the extreme volatility of the industry, investments might often be short-term.

Crypto brokers feature the following advantages:

• They offer great exposure to other financial markets, except for the DeFi one;
• With a brokerage service, money can be deposited through different systems, including bank wire transfers;
• Multi-asset brokers offer copy-trading solutions providing users with the possibility to follow more professional participants;
• There are hundreds of companies, where one can earn on virtual assets, which follow the regulatory requirements of the most respectable international financial institutions;
• Crypto brokers provide full-stack support services.

Alongside this, we cannot ignore obvious drawbacks:

• Crypto brokers don’t offer direct crypto trading — only investing and speculating on CFDs;
• Since brokers don’t focus on virtual currencies, there’s a lack of digital products.

Introduction to a crypto exchange

A cryptocurrency exchange is different from crypto brokers in terms of specialization and priorities. Foremost, these trading platforms are totally dedicated to crypto trading. That’s why, in addition to crypto-to-crypto and crypto-to-fiat instruments, they offer some more tradable products. One more distinctive peculiarity is that cryptocurrency trading platforms offer direct exposure, instead of speculating on contracts for differences. For example, if you trade the BTC/USD pair, the reward will go to those participants who have earlier bought Bitcoin at a lower price.

Unlike cryptocurrency exchanges, brokerage services don’t provide the possibility to earn on non-fungible tokens. NFTs are unique pieces of art based on smart contracts. These tokens can be bought and sold during the auctions. Plus, they record all the data about their creators and owners by using blockchain. Except for the cryptos, NFTs, and crypto-to-fiat currency pairs, users of decentralized exchanges can trade DeFi tokens, futures, and BTC options.

A lot of crypto enthusiasts prefer crypto exchanges to brokerage companies because of such advantages:

• They guarantee a wider diversity of crypto products and grow the amount of tradable options thanks to open listing;
• Crypto exchanges enable direct crypto trading — one can buy underlying coins for other virtual tokens or for fiat currencies;
• Although crypto exchanges have a well-specified specialization, they also offer access to futures and options;
• Some exchanges issue their own digital coins, which can be used by traders to reduce trading fees.

The disadvantages:

• They don’t offer a wide diversity of products from other financial markets;
• The majority of crypto exchanges aren’t officially regulated.

The final thought

When you consider crypto exchange vs broker, you have to take into account that these are different types of platforms. Although both can provide cryptocurrencies, their instruments, rules, and deposit & withdrawal methods are quite different.

Whatever your choice is, explore reliable intermediaries in financial services. In this regard, it might be a good idea to rely on providers regulated by law. That’s why we would suggest trading with brokers because there are more legal instruments that regulate your relationships with such companies.