Cryptocurrency Exchanges vs Brokers – The Difference Between an Exchange and Broker
Before you open an account with a cryptocurrency exchange or a cryptocurrency broker, consult our comprehensive guide.
There are two places to buy and sell cryptocurrencies, each with pros and cons depending on your personal investment goals.
The two places to buy cryptocurrencies are:
- Buying cryptocurrency off an exchange.
- Trading cryptocurrency price movements with a broker.
While they may not always be entirely clear, this guide is here to help you understand the differences between a cryptocurrency exchange and a broker.
This will help you understand which you should open an account on and ultimately buy your crypto.
Cryptocurrency Exchange vs Cryptocurrency Broker
Cryptocurrency investing can be extremely overwhelming at times.
With the global cryptocurrency market being decentralised, different exchanges, brokers and even platforms within each can all show different prices for the same asset.
Understanding the difference between a cryptocurrency exchange and a cryptocurrency broker is imperative for anyone looking to make money in these extremely volatile markets.
Let’s compare the two in more detail below.
A cryptocurrency exchange offers an online platform where buyers and sellers can come together to trade based on market prices.
Exchanges provide the framework in the form of a trading platform, for market participants to trade cryptocurrencies.
Own crypto bought on an exchange
Cryptocurrency exchanges allow you to actually purchase the underlying cryptocurrency asset such as Bitcoin (BTC), then transfer it to an address where you own the private keys.
It’s worth noting that assets sitting in an exchange account technically belong to that exchange.
The only way to gain true ownership of your crypto is to transfer your balance to an external wallet.
Remember the old saying, “not your keys, not your crypto!”
Cryptocurrency exchanges are for investors
Are you an investor who’s looking to build a long-term position that requires the complete ownership of your assets?
Then a cryptocurrency exchange account is a right choice for you.
You can still trade your crypto on a broker style price ladder featuring a spread between the bid/ask price.
But the most important aspect of the exchange is your ability to transfer crypto-assets into cold storage.
Alongside classic price ladders, many popular crypto exchanges will also offer a peer to peer exchange for clients.
This is where people can list their offers to buy or sell cryptocurrencies on a virtual noticeboard.
Buyers and sellers on peer-to-peer exchanges then directly communicate and work out their own arrangements.
A cryptocurrency broker is a company that purely acts as an intermediary between traders and the market, facilitating efficient prices.
They offer traders access to synthetic products, deep liquidity and leveraged trading options via an online trading platform.
Take advantage of price movements via a broker
Cryptocurrency brokers allow you to trade contracts for difference (CFDs) on a range of popular cryptocurrency markets.
CFDs allow speculation on future market movements of an underlying asset such as cryptocurrencies, without actually owning them.
Brokers source the best prices from multiple exchanges.
But because you’re purely speculating on price, CFDs remove the hassle of securing ownership.
Cryptocurrency brokers are for traders
The biggest advantage that cryptocurrency broker accounts offer, is the ability to trade using leverage.
This means that if you’re a trader who’s looking to take advantage of short term price movements on the back of cryptocurrency market volatility, then a cryptocurrency brokerage account is your best choice.
When you trade a cryptocurrency CFD, you do so in pairs such as BTC/USD.
If Bitcoin’s price rises against the dollar then you will make money
But If Bitcoin’s price falls, then you will lose.
You gain exposure to a large position without committing to the full cost of that position from the outset.
It is however important to remember that both your profits and losses will be equally magnified by leverage.
This, of course, depends on the direction of the market.
The Global Cryptocurrency Market
Unlike centralised stock exchanges such as the NYSE or the NASDAQ, cryptocurrency markets are completely decentralized.
This means that there’s no true price of any cryptocurrency and depending on which exchange or broker you use, you’ll see slight differences.
However, these price differences don’t ever cause problems.
This is because there is always an army of arbitrage bots and traders on hand to take advantage.
It’s pretty neat how the free market works like this.
But the global, decentralised nature of cryptocurrency markets can be both an advantage and disadvantage.
This all depends on how you look at it.
Take the example of a US equities trader.
What if they disagree with how the NYSE or regulatory bodies that oversee them conduct their business?
Well too bad, because there is no alternative platform to trade stocks on.
But as cryptocurrencies are decentralised, you’re free to withdraw your assets from one exchange.
Simply take your business to another at any time.
No matter where you are in the world, there’s no shortage of cryptocurrency exchange and broker options available.
Should I Open an Account with a Cryptocurrency Exchange or Broker?
AdonFinance is here to help you make the decision easier.
But the ultimate choice between a cryptocurrency exchange or broker account is entirely up to you
There is no right or wrong between the two and the final decision will come down to your personal goals.
If you’re a crypto investor, where ownership of the underlying asset is extremely important for your long term focus, then open an account with a cryptocurrency exchange.
On the other hand, if you’re a crypto trader who’s focused on taking advantage of short term price movements and volatility, then open an account with a cryptocurrency broker.
The AdonFinance team has compiled all the information you need to choose the right exchange or broker account for you.
Simple consult the table above.
Read detailed reviews on each account type and see our ratings at a glance.
Last but not least, when you open a new account with the green trade now button, you’ll receive exclusive bonuses.