The Ultimate Guide to Crypto Brokers
With Web3 beginning to glisten on the horizon, more and more people are looking to get involved with cryptocurrency. Taking the form of a digital currency which can be bought and traded over blockchain, cryptocurrency is essentially a form of Web3, which arrived two decades early.
It was in 2009 that Satoshi Nakamoto created the whitepaper for Bitcoin. Many didn’t realise it at the time, but this was a revolutionary step in the financial world which was about to morph the way in which users interact with money. Suddenly, instead of having to go through a traditional banking corporation, users could cut out the middleman and trade Bitcoin without even having to leave their bedroom.
With new technology, however, comes a few teething issues. That is to say, when people had complete control over what they were buying and selling, they also had ample opportunity to get it wrong. Just like the stock market, a cryptocurrency exchange never stands still. Instead, crypto proved to have a volatile market system, with prices dropping and falling faster than many investors could keep up with.
Cue crypto brokers. With a number of investors comparing the market of digital currency to the traditional, fiat-based stock market, many turned to the alternative form of a typical stock market broker. These were a way for market newcomers to get to grips with the landscape, easing the passage between the first step of acquiring tokens and the exchanges in which they will be trading.
What Is A Crypto Exchange?
A crypto exchange is a space in which cryptocurrencies – such as Bitcoin, Ethereum, Dogecoin, and so on – can all be bought and exchanged between investors. They can be used to trade one token for another token (for instance, trading BTC for ETH) or buy crypto using regular, fiat currency (such as the US dollar). As well as this, it is possible to convert a particular token back into the US dollar or another currency to withdraw into a typical bank account.
There are a number of exchanges on the blockchain, each one offering its own unique experience for users, meaning investors are able to choose an exchange based on accessibility, security, cost, liquidity and tools. As mentioned before, however, this is not exactly an easy task, especially for users who are new to the world of crypto.
Now that more people are becoming aware of blockchain and the opportunities that crypto offers, many of them want a way in without stepping too far into the unknown and making a mistake which could be costly in return. This is where crypto brokers fall into the mix. With a crypto broker, investors can embrace the world of crypto without having to be well versed in the complexities of blockchain and the wider market in general.
What Is A Crypto Broker?
Just like traditional brokers, a crypto broker facilitates the buying and trading of cryptocurrencies, and they can take the form of a platform, firm or individual. In most cases, a crypto broker offers derivatives to an investor, whereby the investor enters a contract which speculates on the price of cryptocurrencies and puts them in the right stead to collect a return. The derivative can include crypto options, futures, EFTs and CFDs (a financial contract which pays the difference in settlement price between open and closing trade).
In the lead-up to the global integration of the metaverse, a crypto broker’s role has arguably become more important than ever. According to experts, the price of Ethereum and Bitcoin could potentially reach around $300,000 by the mid-2030s, with Web3 similarly introducing a decentralised version of the internet which is due to morph the way businesses and financial systems operate.
With this in mind, it is as good a time as any to get invested within crypto and get to grips with the world which lies ahead. A crypto broker allows prospective investors the space to do this. Heading straight into a crypto exchange is not only daunting, but it can also have a negative effect on an investor’s finances, especially if they are not confident or adversely knowledgeable about trading techniques. With a broker, however, the path of trading can be navigated with experience and assurity.
The Advantages Of A Crypto Broker
As mentioned before, there are plenty of advantages to using a broker, especially if an investor is new to blockchain and unfamiliar with certain trading techniques. Many investors, for instance, make the mistake of using low trading when they choose an exchange. This can lead to high slippage fees and spread, which will only minimise fiat deposits. Brokers, on the other hand, can sell across liquid exchanges to identify the highest liquidity and split the orders across multiple platforms.
There is a phrase that pops up among many crypto community platforms, suggesting a broker makes buying cryptocurrency as easy as buying a t-shirt in a store. Although this may be a bit of a stretch, it is certainly true that brokers make the entire cryptocurrency process smoother. Because brokers are constantly monitoring the market closely, they can increase order book liquidity for assets, allowing users to trade with a larger liquidity pool. This similarly allows the investor to direct and instruct a broker to purchase or sell based on quoted prices and estimates without the concern that they are going down a route with small liquidity.
In terms of payment types, brokers use easy methods such as credit cards, SOFORT and more (which is not always possible on an exchange). An investor can also attain ample support over telephone or live chat, which is especially important at this current time when the bear market is threatening exchange prices to remain low for a while. There is a lot that investors can learn from brokers, not just in terms of the present situation in the market but also in any situation that might arise in the future.
The Disadvantages Of A Crypto Broker
While there are a lot of advantages to a crypto broker, it is important to take a look at some disadvantages and how they might affect an investor. Trading fees, for instance, are generally higher than they would be at an exchange. This is due to the fact that the broker is putting in the time and effort to scan the market and determine the correct route for specific users. Although this is undeniably useful for prospective investors who need that help, it does call for a sufficient return for the broker.
As well as this, the offers of a broker are often smaller than the offers of an exchange, not to mention the fact that exchanges have specific, advanced functionalities such as limit orders, margin trading and stop losses. Direct trading can also have its advantages. For instance, if a user has acquired ETH and is looking to sell, choosing to trade Ethereum directly on an exchange can allow the trader to purchase crypto or fiat currency without receiving the price difference.
There is also more variety when it comes to the assets themselves. With crypto exchanges advancing and offering trading instruments such as futures trading, it is becoming easier to choose alternative tokens (that may even be larger than a brokers) and sell them at a set price. With this being said, there are undoubtedly pros to both broker trading and solo trading, so it is important for a prospective investor to weigh up both to make an informed decision.
What Are The Most Popular Crypto Brokers Today?
As of 2022, there are a number of crypto brokers operating within the market. Five of the most popular include:
Founded in 2016, Capital.com is a global CFD broker which is generally considered the best for first-time buyers. With regular live updates and price alerts, 0% commission fees, tight spreads and a wide range of training material, not only are they beneficial for those looking to make quick returns but also for investors who are looking to become more knowledgeable on cryptocurrency itself.
- IQ Option
IQ Option is an intricately designed broker platform offering a range of assets, including ETFs, CFDs, digital options and commodities. They are considered one of the best platforms today for crypto as they offer quick deposits, withdrawals, short selling, as well as reliably high-liquid options. Their monthly trading volume of $11 billion exemplifies their comfort within the crypto market, and they provide a solid option for investors looking for transparency and assurity.
Despite the fact Robinhood has limited assets and account types, it is still considered a good broker for free trading and cryptocurrency education. They offer an intuitive trading experience with beneficial cash management features. They have recently been judged, however, for a lack of transparency on outages and restrictions to meme stocks, which has led to a slight fall in reputation in recent years.
Webull is a global broker that offers over 200 cryptocurrencies, including a balance of the biggest coins on the market and smaller, lesser-known assets. This variety of tokens and types of investment makes it a good option for fluid investors, especially if those investors are also looking for a solid mobile platform.
Zero transaction and commission fees are always something to look for in a broker, which is part of the reason why BlockFi is a great first choice. This is an intuitive broker platform which is perfect for users with limited experience. Its interest rates mean that the value is often subject to market volatility, but this is alleviated through the ability to earn passive income through crypto in Webull’s interest account.
What Other Brokers Are Out There?
These are just five of the most well-known crypto brokers, but there are many others out there that might be the right fit. Individual brokers, for instance, can offer a more one-to-one type of experience which can be useful for investors looking for a solid customer experience and ongoing, transparent communication.
Is Now A Good Time To Get Involved In Cryptocurrency?
As of mid-2022, the cryptocurrency market has been heading into its second crypto winter. This is a time in which external and internal triggers (such as the de-pegging debacle with Tether and Terra) create a snowball effect which causes market prices to plummet. With the last winter taking place over the course of two years, it is likely that the current bear market will remain for a while. With that being said, it is not necessarily a bad time to invest in crypto. With prices low, there is always the opportunity to buy and hold for when the market improves and prices rise again.
What Cryptocurrency Should I Buy?
This is subjective to the buyer. Right now, many investors are choosing to trade Ethereum due to the upcoming merge, which is due to make significant waves within the crypto market. Many experts have even suggested it could overtake Bitcoin as the world’s largest cryptocurrency network. That being said, choosing to trade Bitcoin or any other cryptocurrency can also be a good option depending on the context of the market at the time of purchase.
Is Every Broker Reliable?
Just as brokers can be unreliable in the traditional stock market, not every broker is going to offer a perfect experience when it comes to crypto. There have been a number of brokers who have been caught out for their poor communication skills, insufficient education services and poor market decisions, so it is crucial to conduct intense research and find a broker who has been widely acclaimed.
Should I Invest In A Crypto Broker?
There are an array of reasons why choosing to invest in a crypto broker can be a good option. Put simply: they offer a way for investors to dip their toe into the market without plunging themselves into the deep end. This is highly beneficial in a market as volatile and oftentimes unforgiving as cryptocurrency. The choice, however, lies in the investor and whether or not they feel confident to trade directly through an exchange.