Over the last decade, cryptocurrencies have outstripped every other investment class, including bullion Gold. As such, they are an attractive means of profit-making. For many people, the complexity of understanding how cryptocurrencies work makes them turn towards cryptocurrency brokers that can help in trading the digital coins.
Users must evaluate cryptocurrency brokers based on various criteria such as security, ease of use and customer support. If you find that buying or selling crypto assets is not your forte, you can refer to our list of the best cryptocurrency brokers in 2021.
Our List of The Top Cryptocurrency Brokers
This guide will list some of the best crypto brokers available in 2021. Each cryptocurrency broker below has its benefits, features and limitations listed so that you can have a fair idea as to which platform will be the best fit for you.
What Is a Cryptocurrency Broker?
A cryptocurrency broker offers a simpler trading experience, where the intermediary takes care of all the process, with the buyer only depositing fiat and selecting the relevant crypto trading contract. This guide will list some of the best cryptocurrency brokers along with their features and benefits.
How Do Cryptocurrency Brokers Work?
Like any other crypto investment procedure, there is a registration process that must be done to start trading with brokers. Head over to the website of the broker of your choice and navigate to the registration or sign up button, usually located on the top right of the main page.
The signup process varies, but usually requires two kinds of input, the name and email address. Once submitted, an email is sent by the broker on the address entered as a basic means to identify that the actual email owner has applied. The verification can be through a confirmation web link.
A reputed crypto broker will always ask for documentation under Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. The brokers can request for KYC/AML checks as a part of the signup process, or ask for it later. This is largely dependent on the jurisdiction they are registered in.
The verification varies according to localities and countries, but most common types of documents requested are:
- A government-issued ID (driver’s license, passport etc.)
- Residency proof (a utility bill, rent contract etc.)
- Source of income (salary slips, bank statement)
Brokers can also ask for more data, such as a picture of the trader holding their government ID, mobile number and even a video interview. This can seem a bit of a burden, but since brokers have to comply with regulations, these checks are necessary.
Some brokers don’t ask for any documentation or verification, skipping the KYC/AML checks completely. This can be very attractive since the checks are basically asking for private information and can sometimes take days to complete. It is best to avoid such brokers as they are probably not registered with authorities and as such, are illegal and can be scams, walking away with your money.
Post-registration and verification, users will be able to access the broker’s offered trades and contracts. However, the broker account needs to be funded first. This can be either through bank deposits or credit/debit cards. Head over to the deposit section of your account to know which methods are supported by the broker.
A user can then start trading when funds are deposited in their broker account. These platforms offer different derivatives products such as Contract for Difference (CFD). CFDs are derivative contracts that allow traders to speculate on the difference in the future value of cryptocurrencies. A trader takes a long position if it is expected the price will go up. Once the contract is closed, if the crypto asset price has increased, the retail investor account makes a profit (minus the broker’s fee). In case the price falls, the investor accounts lose money.
There are other contracts like Options and Futures that brokers may offer. Brokers may also offer leveraged options on top of the contracts, giving more exposure to profits (and increased chances of losses as well).
Once the trades are closed and profits made, the traders and investors have the option of withdrawing their money. The process is as simple as going to their accounts section and requesting a withdrawal to their bank account.
Using a Broker Vs an Exchange
While trading on crypto exchanges and using brokers work on the same principles, they are vastly different.
On a crypto exchange, a trader buys and sells coins and tokens directly. The orders are placed in books and only executed if matched. Brokers offer derivatives products that users can trade and a user does not have to worry about storing cryptocurrencies.
Exchanges offer different services for cryptocurrencies and have the following requirements:
- Wallet: Users need to store crypto on the exchange and transfer them to buy and sell.
- Most exchanges have limited margin support and require upfront deposits for the buy and sell orders.
On the other hand, brokers offer different contracts:
- Simple orders of buying and selling, at a market premium for the instant liquidity offered.
- CFDs for making profits on future prices of crypto assets. A trader can use the differences in prices between the opening and closing trade.
- Options which allow closing the contract before the expiry.
- Leverage to allow borrowing of money to multiply the value of the contract
Using brokers is far easier. The contracts, however, also exposes the traders to the risk of running larger losses. Users must gain some knowledge before trading in cryptocurrencies.
Trading Vs Buying
Trading and buying both provide different benefits to traders and users. If a person is interested in holding cryptocurrencies, buying is the best option. An exchange will provide the required cryptocurrency to a user, usually at a premium. The cryptocurrency is then deposited in the user’s wallet, which the user then can withdraw to their external wallet. In short, buying gives the user possession of the cryptocurrency.
On the other hand, trading never actually gives possession of the cryptocurrency. The contract only allows the user to employ the agreement and close it, pocketing the profit (or bearing the losses). Trading gives the benefits of profiting from the price volatility of crypto without the complexity of owning the underlying crypto assets, a far more appealing option for many.
Key Things to Consider When Choosing the Best Cryptocurrency Broker
There are many cryptocurrency brokers online that allow people to buy or trade cryptocurrencies with ease. Selecting the right broker can be a bit tricky. However, there are some aspects that one must look into before selecting:
- Reliability: The broker must be reliable. A good broker will always be registered with local authorities and display their registration number.
- Payment Methods: What if a broker is good and reliable, but the payment method offered isn’t what your local bank supports? Check about the connected banking channels.
- Fee: Brokers make profits by charging different kinds of fee. This can include premiums, interests on contracts and also for deposits or withdrawals.
- KYC/AML: Depending on the jurisdiction of the broker, it may ask for a simple verification or a complex one that may take time to be complete. At times the trader’s location can also limit the type of trades that can be done or are completely unsupported.
- Contracts: Not all brokers offer every kind of contract. For example, CFDs may be offered, but not options or futures.
- User Interface: Though brokers take out the hassle in trading, their interface can still be pretty complex for some. Some brokers offer simpler interfaces for the less experienced users too.
Pros and Cons of Using Cryptocurrency Brokers
Designed for people who wish to trade rather than invest long-term, brokers offer an easier way out. Brokers offer complex derivative products, aimed towards people who want to make profits from trading cryptocurrencies but don’t want to buy them in the first place. Leverage also allows traders to make more profits than they would at cryptocurrency exchanges. Users must weigh various cryptocurrency brokers on several parameters such as security, safety, customer service and regulation before selecting a platform.
Frequently Asked Questions
Yes. Many brokers cater to new traders and provide automated options to simplify trading.
If your contract is incurring losses, it will eventually lead to a value where the broker will ask you to deposit more in the contract or risk liquidation. Each broker has its own margin requirement.
Normally, brokers liquidate your positions with a margin call and don’t let your balance go below zero. It is best to discuss this with your broker before starting to trade.
Futures are time-bound contracts which expire on maturity. Perpetuals are a variation of Futures but without any expiration date.
A contract used to speculate that a cryptocurrency will fall in value is called a short position.
Today, many trading platforms offer both exchange and broker services.
Ask your broker if they have any mechanism in place for this. Some brokers do not offer any protection against weekend price swings, making contracts riskier.
Since the crypto market never sleeps, most brokers offer trading round the clock, on all days.