Crypto Exchange vs Crypto Broker: Which Is The Best

Crypto Exchange vs Crypto Broker – What Should You Know

Hello everyone, today we will talk about the difference between the cryptocurrency exchange and the crypto broker. Moreover, we will tell you when it’s best to trade on the crypto exchange and when you should go with the cryptocurrency broker.

Side note. Consider visiting our YouTube channel where we discuss crypto trading strategies, ideas, tips, reviews about platforms, brokers, individual cryptos, wallets, anything. We want to improve the experience of our followers because we have a lot of experience and we’re very happy to share it with our students, traders, and followers. So even when traveling, we record some videos.

“Should I trade on the crypto exchange or should I trade with the crypto broker?”

This is one of the most commonly asked questions that we received during the years. Doubt is over after the 2020 crises. Many traders profit when using the crypto brokers and many lose when using the crypto exchanges.

The recent days proved why with the cryptocurrency brokers are so much better than the exchanges. Unfortunately, millions of people lost so much money in the exchanges.

There are many scam brokers and many people are being scammed daily. If you want to know how to avoid the scam brokers, please, read the topic that we have in the forum, How to recognize the Scam Brokers. And of course, we always assist our students to choose the good and proper broker for trading.

The Difference Between Crypto Exchange & Crypto Broker

When we use cryptocurrency brokers, we can sell and take the profits when the price gets lower. Something that is not available on the exchanges. In other words, on the exchanges, you can trade only in one direction – up. In trading, we can buy and sell – double opportunities. With the brokers, we execute the trades immediately, no time to wait. Also, when we close the position we close it at the moment. On the exchanges, you can not do it so quickly.

When you want to keep your crypto coins for a longer time, you need to go for the crypto exchange. If you want to speculate and buy and sell quickly, for example, buy in the morning and selling the afternoon if there is movement then you need to go for the Forex broker.

Why do we say Forex broker?

Because the brokers that offer crypto trading nowadays, all have started with Forex trading. Most of the brokers are Forex brokers because their main business was the Forex before the crypto came out.

So what is the difference and why we say that if you want to keep your coins longer you go for Coinbase, Binance, or any other crypto exchange?

The difference is that on the crypto exchange when you buy coins, you actually get the coin. You get the token. You get the chance to put this token or coin in your wallet. And you don’t have any fees for holding them in your wallet, you can hold them for months and years, nobody will charge you for that.

Swap Fee

With the crypto broker, if you buy Bitcoin, for example, you will be charged every night a small fee called swap. And this is a very small fee compared to the fee you pay on the crypto exchange when you initially purchase.

On the exchanges we do not pay spread and swap, which are the huge costs of the brokers. There are some brokers that are trading at 0.01 cent, which partially solves that problem.

Visit our crypto exchanges list if you are Interested to see some of the crypto exchanges that we use at the Academy.

Let’s take one Bitcoin, for example. If we buy one Bitcoin, we pay at the moment (in December 2020) about €300 as a fee on the Coinbase crypto exchange for a complete Bitcoin. While with the Forex broker, we will pay just the spread. With the different brokers it’s different, but let’s say it’s somewhere between $10 and $30.

Do you see the difference? Crypto exchange €300, crypto broker $20 average. It’s a huge difference. But what happens here with the crypto broker is that if we keep our Bitcoin overnight, we will pay somewhere between $6 and $10 as a fee. So every night $6, $6, $6, $6, $6. If we keep the Bitcoin long enough, it will get more expensive compared to the Coinbase crypto exchange.

The Crypto Broker Enables Trading With Robots

We use the crypto broker for automated trading where we trade with Expert Advisors (EAs) on MetaTrader and this is because the EAs are buying and selling daily.

The Expert Advisor is an automated robot that trades on your behalf, even you are not in front of the screen. This means that with exchanges you are stick on the screen if you want to trade.

So some of the Robots will buy in the morning. Then they will sell in the evening or in a few hours time. Others will just hold the trade for a few days and they will sell it. That is why we keep the low fee here.

With the crypto brokers, you can also trade with many Expert Advisors. Something not possible with the crypto exchanges. On the Coinbase crypto exchange, or on the other cryptocurrency exchanges we cannot trade with robots so that’s one of the differences. If you trade with crypto brokers, you can trade with robots.

That’s what we do. And if you buy coins on the crypto exchange, you cannot do automated trading.

The other difference is that with the crypto brokers you don’t physically buy and this is something that many beginners don’t understand. When you trade on the crypto broker platform, you don’t physically buy the asset.

Especially for the cryptos, it’s very hard to say it physically. But let’s call it physically because we can still put actual cryptos in a Ledger or other device, for example.

Ledger is a hardware wallet for cryptos that we use and it’s a very secured one. So on the crypto broker, what we have is not actual coins that we buy and sell.

CFD or The Contract for Difference at The Crypto Broker

At the crypto broker, we trade CFD contracts, which is called so because it stands for Contract For Difference. Contract For Difference means that every time we buy a Bitcoin, we make a contract with the broker that if the price goes up, we will benefit from that difference. If the price goes down, we will lose that difference. This is called CFD trading.

So we don’t actually purchase Bitcoin or any other coins with the crypto broker, we don’t purchase EUR, we don’t purchase gold. It’s CFD trading.

And this is a very popular method of trading and especially for Bitcoin.

After that in 2018 was the best time to use crypto brokers. You know why? Because the Bitcoin was crashing. It was just that stone falling down and with the crypto brokers, you have the option to sell even if you haven’t bought it previously.

So how it works? We fund an account with the crypto broker. For example, we funded a $10,000 account and we can use these $10,000 to sell something on there, the Bitcoin. Remember, we’re talking about Bitcoin in 2018. And we can benefit from the difference if the price falls.

So if the price falls from $10,000 to $6,000, if we sell on $10,000, we will benefit from this difference of $4,000. Even if we didn’t buy anything previously, even if we didn’t have any coins previously.

Last but not least, with CFD cryptocurrency trading brokers, you can trade with an expert advisor, which is not possible to be used over the exchanges.

Different Trading Methods

That’s the difference between trading CFD and when trading on the cryptos. So which method we would suggest to you? Depends on what you want to do, we do both.

On the crypto exchange, you invest in cryptocurrencies. You buy and hold them for a longer time. With the crypto broker, you trade personally with Robots – you are buying and selling daily, and you pay much lower fees.

And, one more time, on the crypto brokers that offer the MetaTrader platform, it is allowed to do automated trading with the Robots. For the Bitcoin.

So one of the disadvantages of crypto brokers is that they don’t offer a lot of assets. Usually, they have just Bitcoin, Ethereum, Litecoin, and Ripple. That’s what we’ve seen with most of the crypto brokers. While on the crypto exchange you can buy many cryptocurrencies.

It’s a matter of time until the crypto brokers start offering more cryptos on MetaTrader that we can trade with Robots or manually.

FCA Regulated Cryptocurrency Brokers

With the cryptocurrency trading brokers, it was possible to do leveraged trading. This gave the opportunity to traders with small trading accounts to trade bigger positions.

But something interesting we learned a few days ago is actually that the FCA regulated brokers are going to remove CFD trading from MetaTrader which was quite surprising. We still don’t know why they took that action.

Even they lowered since 2018, there was the ISMA restriction that lowered the leverage to 1 to 2 for cryptos in Europe which is 1 to 2. Traders were used to 1 to 100, 1 to 200-500, and they lowered to 1 to 2 which means that we really need a lot of capital to trade Bitcoin with a crypto broker.

And now, they just ask all the FCA-regulated crypto brokers to remove coins from their platforms. So we guess the only solution will be to trade with non-FCA regulated crypto brokers which is something we personally don’t want to do.

But from January 2021, this may be the only way to go for algorithmic trading with Bitcoin. Non-FCA regulated crypto brokers and MetaTrader.

Non-FCA Regulated Crypto Brokers

Still, there are other regulations, of course, but FCA for the moment is like the strictest regulation for the Forex & crypto brokers. And if you’re using a crypto broker with MetaTrader, make sure it’s regulated. That’s super important, Make sure to have FCA, Sysec, in every region, it’s a different regulator.

Due to the huge number of people enrolling in the exchanges, some of those, have closed doors and even is someone succeeds to register, it will take another week or two for the verification. So this way, even you want to join cryptocurrency trading on the exchanges you will miss the movements in these two weeks.

But what will happen if one broker closes doors and there is not even one regulator or organization staying behind? If that happens with a regulated broker, in each country there are different terms for deposit guaranteed, normally they are somewhere around 20 000 EUR.

For the FCA regulated brokers, the deposits are guaranteed by the Financial Services Compensation Scheme​ for 50k GBP.

With some crypto exchanges there are limitations on the withdraws (recently 1-2 Bitcoins per day with some), with the crypto broker, you can take out your money at any moment (of course the regulated brokers). So make sure you check which is the regulator for your country and choose a regulated broker. Same with the crypto exchange. Coinbase is a regulated and licensed cryptocurrency exchange, for example. That’s why we initially started using it and we saw it’s super friendly and super easy.

Due to the huge number of people enrolling in the exchanges, some of those, have closed doors and even is someone succeeds to register, it will take another week or two for the verification. With the cryptocurrency brokers, this is possible within the same working day. So this way, even you want to join cryptocurrency trading on the exchanges you will miss the movements in these two weeks.

So these are the major differences between crypto exchange and the crypto broker. If you have any questions, drop them in the comments below. See you in the next lecture.