Are Online Brokers Safer than Cryptocurrency Exchanges?

One of the key features that every cryptocurrency trader values is safety. Which begs the question: what’s the safest way to trade cryptocurrencies? In an attempt to answer that question, we’ve searched high and low and compared a range of different trading platforms. The results are presented in this post.

Keep in mind that we’ve looked at trading platforms and not how to safely invest in cryptocurrencies. If your aim is to invest in the long-term, there is no safer way to do it than cold storage. But more about that in a second.

Online Brokers Offering Cryptocurrencies

An online broker is a broker that offers a trading platform through an online service. Generally speaking, these brokers are either forex brokers or derivatives brokers, and most of them offer a combination of the two.

Subsequently, that means you can use most online brokers to trade on a range of different markets from forex and stocks to cryptocurrencies. Furthermore, these assets are offered as derivatives, most commonly as Contract for Differences (CFDs) which are completely speculative, meaning you never own the underlying asset.

What makes these online brokers unique in this situation is that they are fully regulated and licensed. For example, most online brokers are based in Europe where they’re either licensed by the Financial Conduct Authority (FCA) in the UK or the Cyprus Securities and Exchange Commission (CySEC) in the EU. There are also some online cryptocurrency brokers – such as eToro – operating in the United States where they’re regulated by the SEC or the CFTC.

These regulatory bodies are considered to be some the most respected in the financial industry, meaning all the institutions and brokers they regulate, are considered safe to use. You can read more about the best cryptocurrency brokers right now here:

Cryptocurrency Exchanges

A cryptocurrency, on the other hand, is a trading platform to solely offers cryptocurrencies. Now, these can be set up in a few different ways where some offer the option of trading the actual assets you buy, or they too can offer derivatives and currency pairs based och cryptocurrencies.

The big difference here is that cryptocurrencies, unlike the forex market or even CFD market, haven’t been classified as a specific asset class yet. In turn, that means that there is no regulatory body responsible for safe-keeping the industry.

That means that cryptocurrency exchanges are neither licensed nor regulated and, in the end, they are fully responsible for their own safety measures and requirements.

The Verdict

By now, it should have become quite obvious which the safer option is. In fact, there is no doubt that online brokers are superior in terms of safety when it comes to trading cryptocurrencies.

One great example of this is the number of cryptocurrency exchanges that have been hacked and robbed in the last couple of years, often resulting in their customers losing their funds. In the same time period, none of the regulated online brokers in Europe and the United States have been hacked.

In other words, if you prioritize your safety, online brokers is the safest option. But there is one catch which brings us to the last segment of this post.

Final Note

The number one issue with using brokers to trade cryptocurrencies and not an exchange is that you’re never going to own the underlying asset. And, for many, that is a priority in which case it makes sense to use an exchange instead of a broker.

Finally, as mentioned at the beginning, if your goal is to invest in cryptocurrencies over a long period of time, or if you want to use them as means of payment, you should always store them in cold storage. And when compared with the to above-mentioned options, cold storage is far safer.

Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.


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