Why Use A Crypto Broker: Exchange vs Brokerage
Updated: Apr 26
There are many ways to obtain cryptocurrency - mining, exchanges, brokers - yet each come with their own benefits and drawbacks. This article will briefly explore the benefits and costs of using a crypto exchange and of having your own personal bespoke brokerage. Please note that not all the benefits/drawbacks listed will necessarily apply to exchanges or brokerages.
Centralised exchanges can be a great way to purchase/sell crypto, whether for a long-term investment or simply for trading purposes.
These are software based platforms that one can create an account on, fulfil Know Your Customer requirements and subsequently have access to a plethora of crypto. Generally, sign up processes are fast if onboarding as an individual, usually occurring within a day.
Some of the top centralised exchanges include: Binance, Kraken, Coinbase, Huobi, FTX, KuCoin, Gate.io, Bitfinex and Bitstamp.
Selection: One of the primary benefits of using an exchange is the great selection of cryptocurrencies that exist on many of the top platforms. Binance, for example, has over 500 coins listed, with regular listings continuously occurring. Exchanges are often quick to list new tokens, remove others and monitor their offerings. Most crypto tokens listed on large exchanges will generally have much greater liquidity than those newly listed on decentralised exchanges such as UniSwap. If one is looking to obtain a diverse exposure to the crypto market, an exchange could be a good place to start.
Fees: Many exchanges can offer competitive fees for the purchase and sale of cryptocurrency. These fees can however vary largely dependent on volume transacted, payment methods, whether using the pro version of the platform or even if you pay trading fees with the platforms own crypto token (such as the BNB token for Binance). Fees are also split into 'taker' and 'maker' fees; taker fees are those incurred by drawing liquidity out of the market, i.e. buying, and maker are those incurred by providing liquidity, i.e. selling. Taker and maker fees generally differ to one another and between different exchanges.
Trading Capabilities: Centralised exchanges usually offer advanced trading capabilities: market & limit orders, leverage, and derivative products can be utilised. Limit orders can be especially useful because they enable the trading of crypto at predefined prices which can be set ahead of time. By setting limit orders, one can sell or buy crypto while away from their phone or laptop automatically at set prices, this can be hugely advantageous given it's not always feasible to sit around and wait for a coin to hit a certain price in order to place an order.
Software Capabilities: Exchanges often have advanced software capabilities such as the ability to algorithmically trade. KuCoin, for example, provide access to something called Grid Trading where predefined trading criteria are set using limit orders, to buy and sell at different levels to make profit. Another software advantage on centralised exchanges are the ability to use API connections; APIs act as an information bridge and can be used for automated trading between an exchange and outside provider or for exporting trades to tax software calculating companies such as CoinTracking.
Overall, there are some valid reasons to use an exchange hence explaining their popularity. However, they can come with many drawbacks that make their use untenable or difficult for some.
Security risks: Although some exchanges have advanced protocols and systems in place to protect against hacks, these have still occurred on some exchanges. Even some of the largest exchanges like Binance and KuCoin are reported to have been hacked at some point. One of the best ways to lower risk of hacks are to control your own private keys and keep Bitcoin off exchanges in Cold Storage using devices like Trezors. Moreover, exchanges are companies and as a result may not be able to pay out if significant hacks or issues occur.
Complexity: Exchanges may also be extremely complex, especially to new users. The flip side of having advanced trading and software capabilities is that platforms may confuse new or less experienced users. Simply understanding how to place orders, what orders to place, where the transacted crypto has gone, how to withdraw crypto, what the fee structure is, or even which crypto to select may be difficult for some.
Fees: Although exchange fees can be highly competitive, they are sometimes burdensome. CoinBase, for example, reportedly charge 2.49% for CoinBase card transactions. Some exchanges may also charge 'hidden fees' contained within the trade spread (bid & ask fees). Lastly, it can be the case that in order to reduce fees one needs to purchase and pay in the crypto exchange token linked to a platform - the BNB token is a great example - however, holding additional exchange tokens to pay fees may result in losses in the token held if the price moves (trading higher volumes, in addition to other methods, can also be ways to reduce trading fees).
Withdrawal or Deposit Drawbacks: Exchanges rely heavily on banking to process transactions. There are a number of issues specific to certain (but not necessarily all) exchanges regarding banking that customers face. For example, customers will often incur a cost when withdrawing funds to their bank account. Another potential issue is the lack of pairing in a person's or company's local currency. Binance for example, at the time of writing, do not have GBP deposit capabilities for corporate entities.
Customer Support & Interaction: Big exchanges often have poor customer support. It can take a while to find how to get support and subsequently get hold of a human, some taking even hours for specialist support. Naturally, exchanges may not provide the same level of guidance you may get speaking to a firm with exceptional bespoke support.
Another valid way to purchase or sell cryptocurrency is through brokerages. Brokerages exist in most industries and are a valuable means to facilitate commerce for customers. In the crypto world, bespoke brokerages are harder to come by compared to exchanges. However, crypto brokerages can provide an exceptional means to get exposure to crypto.
Simplicity & Customer Support: Perhaps one of the most important benefits when using a brokerage is simplicity & customer support. For crypto to have mass adoption, users of all technical understanding will most likely need to be serviced effectively.
Brokerages do not tend to involve complex software dashboards with many cryptocurrency listed and methods to trade. Telling a first time or less computer capable client to sign down to an exchange, browse the market tabs, place a market/limit order, find the crypto and withdraw it to cold storage may not be too feasible without significant study.
Good brokerages help solve this problem by providing a simple solution to this problem of complexity - they can guide the user through the methods by which crypto can be traded, where to store this crypto and help them if any issues arise. People have limited time and having to wait for customer support to talk to a random human may not be ideal. The exchange customer support may not remember your last relatable issue due to the sheer volume of requests, have been the same person, or the department support you are transferred to may not fully understand your issue without another explanation.
Brokerages can form bespoke personable relationships with their client to answer specific questions they may have and provide guidance. In an age of information, complexity and technology, the ability to talk to an experienced crypto enthusiast is extremely helpful to many clients.
Fees: The fees provided by a brokerage may be more flexible, cheaper and less standardised than a traditional exchange. While some brokerages are more expensive than an exchange, there is arguably a larger degree of flexibility in rates. The phrase 'You get what you pay for' is also perhaps more relevant with regards to brokerages.
Security: Depending on how crypto is stored as a result of using a brokerage, it can be significantly safer than an exchange. SatoshiDeals, for example, partner with Trezor to help provide clients with some of the highest storage standards in the space. Storing your funds off an exchange in cold storage is one of the most secure methods to store your crypto. Brokerages can also provide guidance on how to do this, for more information check out our recent article on 'How To Store Crypto?'.
Withdrawal/Deposit Pros: A good brokerage will have exceptional withdrawal and deposit capabilities. SatoshiDeals, for example, offer both corporations and individuals institutional grade banking in GBP & EUR with no deposit or withdrawal limit. These are two huge markets that can be serviced within a matter of minutes with exceptional customer support.
If an issue occurs at either brokerage or customer banking end, good brokerages with arguable better customer service are on hand to help. In a time when scams are prevalent and customers are concerned about withdrawing money from crypto, having exceptional banking capabilities is paramount.
Brokerages do however have possible drawbacks.
Fees: Some brokerages charge high fees for facilitating transactions, some much higher than an exchange. It may however be considered worth doing if the benefits of a brokerage outweigh the increase in fees you may be charged.
Selection: Some brokerages also may not offer the same selection of crypto that an exchange might offer, which may make obtaining a diverse set of crypto more difficult. With this said, 'quality over quantity' could be a phrase with validity. SatoshiDeals ourselves favour quality over quantity however offer the ability to transact almost any crypto listed on a centralised exchange.
Accessibility: Many customers will value accessibility for themselves over having a brokerage carry out the transaction for them. The ability to click a button, execute a transaction and receive the crypto on an exchange wallet may be important. On an exchnage, the transaction can be viewed more easily in the short term, whereas brokerages will carry out the transaction for you behind the scenes.
Trust: Following from accessibility, given the nature of the sign up process and transaction, a person arguably has to place more trust in a brokerage than an exchange. Scams are unfortunately prevalent in the crypto industry, which means sending your funds to a company you do not have a sign up interface to and that is not directly accessible via a platform may require more trust.
With this said, an accessible platform does not guarantee the project is not a scam or that it has sufficient capabilities to pay out in case of a requested withdrawal. Trust is vital and this speaks to the importance of finding a broker with an exceptional record and one that is authorised to operate.
Both exchanges and brokerages have their benefits and drawbacks. It is also important to state much of exchanges/brokerages benefits and drawbacks depend upon the nature of the client in question and their specific wants.
A knowledgeable tech savy, enthusiast regularly trading crypto may prefer an exchange to a brokerage, but a first time or less knowledgeable client who wants to talk to a human may prefer a brokerage.
Introducing SatoshiDeals - A European Tier One Brokerage
SatoshiDeals offer personable customer service and market leading rates. We pride ourselves in guiding customers through purchasing cryptos while answering questions they may have along the way.
If you are looking to purchase crypto or Bitcoin for the first time, or if you are a repeat customer, SatoshiDeals is the broker to use. For more information on the advantages of having your own personal broker, please click the link to find out more.
We also partner with Trezor, a market leading custodial wallet provider for the everyday user who wants to hold their own cryptocurrency securely. Please find our referral links below:
"Simple and quick. I was worried when the description said 'No bots' but the process was just as fast as traders I have dealt with that use bots. Not blocked by UK banks" – Local Bitcoins Customer