Meanwhile a multiplicity at Bitcoin stock exchanges on the international crypto markets finds itself again. But which of these providers should you trust? And what do I have to consider when trading on these exchanges? The following article compares and evaluates the currently most popular and best Bitcoin exchanges so that nothing stands in the way of a successful investment.
The virtual currency “Bitcoin” (BTC) created by software developer Satoshi Nakamoto (the name is a pseudonym) has attracted a lot of attention on the financial markets since its programming in 2008. The enormous upswing of more than 3000 % at the end of 2017 also drew the attention of many private investors to the “digital coins”, which for a long time had only been a phenomenon among expert programmers and investment professionals. However, even though Bitcoin has seen a remarkable increase in value over its history, investors should be fully informed about the Bitcoin phenomenon. The sometimes dramatic price losses of recent months and the danger of overheating, which several experts have pointed out, show that the online currency is not a self runner.
Investors should therefore be fully involved with the digital currency, but also with the possible platforms and exchanges on which the Bitcoin can be traded. Particular focus should be placed on the security of the Bitcoin exchange, but also on the possibilities for analysis and control of the investment made.
In the following, the functionalities of the Bitcoin and the available stock exchanges are described, hints for trading on Bitcoin stock exchanges are given and trading platforms are recommended which offer particularly interesting options for private investors.
Note: In addition to Bitcoin, there are many other crypto currencies available today, such as Litecoin, Etherium and Monero. However, since the Bitcoin is the most important of the digital currencies, this article focuses on it.
How do I buy Bitcoin?
For a long time, the Bitcoin was considered “play money” for Internet nerds and cyber gangsters. Today, however, the Bitcoin has established itself as a serious currency and a lucrative investment vehicle in the financial sector.
The relatively easy access to the Bitcoin system also plays an important role. Even if terms such as crypto currency or decentralised value creation sound confusing for investors, buying your own Bitcoins is still relatively easy and uncomplicated. Similarly as with the share purchase, with which the customer must open first a depot with a broker, needs however also the purchase and trade of Bitcoin an appropriate platform.
Among the best known of the so-called Bitcoin Exchangers are Coinbase, Kraken and Binance, but also the social trading platform eToro and the online broker markets.com. The customer can be registered and identified using an app with just a few swipes. The amount of registration information required is manageable, and registration takes just a few minutes.
Tip: Investors who want to start trading with Bitcoin should start with a very small trading volume. This way, initial attempts can be made and experience gained without the risk of losing a large sum of money in the event of negative price developments.
What is a Bitcoin exchange?
In contrast to classical currencies, where a physical object (e.g. a bank note) reflects the value of the currency, the Bitcoin as currency cannot be traded directly, i.e. physically. The Bitcoins are scooped as a decentralized currency in a decentralized computer network, the heart of which, a database now comprising several gigabytes, is called a block chain. Since all Bitcoin transactions are listed in the blockchain, the size of the database continues to grow steadily.
To become part of this system and Bitcoins, investors have two options:
- access via Bitcoin-Wallet.
- trading via a Bitcoin exchange.
The Bitcoin Wallet, also known as a digital wallet or purse, enables the investor to own the Bitcoins personally. The customer independently manages the Bitcoin keys, with which each Bitcoin can be assigned without any doubt. However, for many customers the self-administration of the Bitcoins with the associated wallets and Bitcoin keys seems too complex or insecure, as they do not want to deal with the technical peculiarities of the wallets (in the case of paper or hardware wallets) and fear security risks when transferring the keys to mobile or online wallets.
Bitcoin exchanges, on the other hand, offer a simple and uncomplicated alternative. When trading Bitcoin via a Bitcoin exchange, the digital coins are traded on a stock exchange similar to shares and funds. The investor does not own the Bitcoins himself, but has them managed by the respective exchange platform in the form of share options. The model of the Bitcoin exchanges is therefore comparable to the trading of currency or commodity certificates, where the investor does not own the money or commodity (e.g. oil) directly, but has the assets acquired through the share certificates managed by a broker.
Special features of the Bitcoin exchanges – What should you pay attention to?
Trading Bitcoins can be complex and confusing for investors. The constantly growing market for Bitcoin platforms makes it even more difficult to get an overview. Even though trading Bitcoins is similar in many respects to trading on the traditional stock or currency market, investors should also consider a few important peculiarities in order to avoid unnecessary risks:
Stock exchange or broker?
Even though the term Bitcoin exchange has firmly established itself in financial language use, a distinction between actual Bitcoin exchanges and Bitcoin brokers is still helpful:
- With real Bitcoin exchanges (also called Bitcoin marketplaces) such as Bitcoin.de or Kraken, sellers and buyers are brought together directly. The price of the Bitcoin currencies is permanently determined anew from the existing supply and the prevailing demand and displayed in real time. Sellers know exactly at which price they can buy or sell Bitcoins at the current moment. The purchased or sold coins are immediately transferred to the customer’s trading wallet and can then be transferred to the personal wallet.
- A Bitcoin broker uses the so-called CFD trading method (Contracts for Difference). The Bitcoins are not bought or sold directly. Instead, investors speculate on rising or falling prices of the respective Bitcoin currency. Among the best-known crypto brokers are eToro and Markets.com.
Exchange with or without Wallet?
Some providers require their own trading wallet for trading Bitcoin and Co., from which the traded coins can be debited or realised profits can be deposited. All transactions are therefore first processed via the wallet created with the respective provider before they can be transferred to the personal wallet.
This small detour in Bitcoin trading does not present a problem in most cases, but under certain circumstances acquired Bitcoins can only be traded with a slight delay due to the necessity of forwarding them to the private wallet. Investors should also consider whether separate transaction fees are due for the forwarding of Bitcoins from the trading wallet.
Tip: However, setting up a trading wallet is not necessary for all providers. For example, eToro and Markets.com do without such a wallet. Instead, the paid-in cash can be traded directly.
Trading your own cash assets has a great advantage for investors: they can see directly at any time what cash value is available in their custody account. There is no need to convert the Bitcoin assets into more manageable foreign exchange assets, as may be necessary when using trading wallets. However, investors should observe the respective conversion rates of the selected trading currencies.
Investors must therefore not only keep an eye on the daily value of the crypto currency for trades, but also on the respective trading rate of the payout currency (e.g. euro rate, dollar rate).
Trading different currency pairs (e.g. Bitcoin as the trading currency, Dollar as the payout currency) can provide great opportunities for wise investors. If an investor sells his Bitcoin coins at a high Bitcoin exchange rate and a relatively low dollar exchange rate, for example, he can increase his profit considerably in contrast to trading at a high Bitcoin and dollar exchange rate. Conversely, however, a bad speculation can also result in significant losses.
Tip: For new investors, Bitcoin trading with stable and low-variation payout currencies is recommended, as they can initially concentrate on the performance of their Bitcoins without having to keep a second currency in mind. Even simpler in this respect is the combination between Bitcoin exchange and Bitcoin wallet, which many platforms offer, as investors can almost completely neglect the aspect of value conversion at least initially.
Trading Multiple Crypto Currencies
Experienced investors not only use the opportunity to speculate on the rising exchange rate of the selected digital currency when trading crypto currencies. Instead, they execute trades between different crypto currencies so that they can also profit from falling prices.
For example, when exchanging Bitcoin for Ethereum, investors receive an above-average amount of Ethereum when the price of this currency is relatively low. However, a corresponding final added value presupposes that the price of ethereum will rise again later.
Crypto currencies are among the highly speculative investment vehicles on the stock market. High price fluctuations within short periods of time are not uncommon. Investors should therefore choose a trading place with high liquidation. This means that crypto currencies are bought and sold on the corresponding market at any time and traded to a high extent, so that transactions are executed within a short time.
If, on the other hand, the trading venue only has a relatively small trading volume, price changes are reflected only sluggishly. As a result, orders cannot always be completed in a timely manner, which can result in price losses.
Tip: It is therefore advisable to rely on large stock exchange and trading platforms, such as those described at the end of this article, on which a constantly high trading volume prevails.
Leverages enable investors to significantly increase the effect of their own investment in a crypto currency or to profit disproportionately from price fluctuations in the forecast direction. Leverages with an effect of up to 500 are available on the financial platforms. This means that with an amount of 100 euros the sum of 500,000 euros can be represented.
Leverages are therefore a great opportunity on the capital market. At the same time, however, they also considerably increase the risk of a capital loss, so that this tool should only be used with the appropriate knowledge.
When selecting the Bitcoin exchange, investors should keep a close eye on the payment methods available for acquiring Bitcoins. For newcomers to the Bitcoin market, the use of “real” currencies (also known as FIAT currencies), which are deposited to the customer’s account by bank transfer or credit card, is particularly straightforward.
Among these, primarily the US Dollar, but also Euro, British Pound or Japanese Yen are accepted as means of payment. On some platforms, however, only investment with self-acquired crypto currencies is possible. Investors must therefore first have a filled Bitcoin Wallet in order to be able to start trading with the digital currency.
By the way: The Bitcoin purchase via PayPal is only possible with a few providers (e.g. eToro or Markets.com). The reason for this is that the basically anonymous value trading in the Bitcoin system is contrary to the buyer protection principles of PayPal, since cash flows in Bitcoin trading are difficult to allocate.
Anyone who not only wants to keep Bitcoins and Co. in safe custody, but also wants to act actively, should deal well with the different fees charged by the respective providers, since depending on the amount of the fees due, the return can be significantly reduced in some cases.
1. trading fees
The trading fee is the fee charged by the provider per transaction. As a rule, these fees are staggered and depend on the respective transaction volume. The higher the volume of the transaction, the lower the costs. In most cases, they range between 0.1 and 0.25 percent of the transaction amount.
2. deposit and withdrawal fees
While a network fee is charged for so-called crypto transactions (i.e. trading in various digital currencies), fees are charged for the deposit and withdrawal of the respective amounts of money when trading in crypto currencies on the basis of foreign exchange. The cost of money transfers is lower than that of credit card deposits, which can be up to 3.9% (coinbase). However, there are also providers who offer trades and payouts completely free of charge. Investors should therefore carefully study the terms and conditions of each platform.
3. inactivity fees
Less active merchants should focus on possible administration fees for inactivity, so-called inactivity fees. They are always incurred when no trades are made on the platform over a longer period of time.
Bitcoin exchanges in comparison – Which providers are recommended?
The number of crypto exchanges and Bitcoin brokers continues to grow steadily. It is therefore a challenging task, especially for new investors on the market, to gain an overview of the multitude of platforms and providers. The large platforms on the market, which have the following features, are therefore particularly recommendable for newcomers:
- A wide range,
- Understandable Apps,
- A wide range of payment options,
- Transparent fees and
- High safety standards
Less recommendable, on the other hand, are very small and unknown platforms about whose business practices often only little information is known.