Broker versus Exchange: What is the difference?

8 days ago

Broker versus Exchange: What is the difference?

Many beginners ask themselves where to start investing in cryptocurrencies. The most important place for many investors is a broker, while others prefer an exchange for trading. But what is the difference between both services and how can you maximize utility from them?

It is important to understand that there are a lot of different services involved in the crypto industry to create a vibrant market. Each one is an important piece and, in some cases, one couldn’t even exist without the other. Let’s take a look at a couple of examples, but in this article, we will focus on the first two options:

  • Cryptocurrency brokers
  • Cryptocurrency exchanges
  • Market makers
  • Custody providers

What is a crypto broker?

While custody provides and market makers are companies that offer their services in the background, a crypto broker is a service that directly works with retail customers. A broker offers to buy or sell cryptocurrencies for fiat money. Making it one of the most important services in the industry for investors and traders alike.

A crypto broker will allow you to deposit Euros and buy Bitcoin or other cryptocurrencies. It is also an important place when you are going to exit the market, because a broker also provides you with the opportunity to sell your assets and cash out to your bank account. Therefore, a broker usually provides direct access to a broad number of cryptocurrencies for its customers.

What is the difference between a broker and an exchange?

An exchange offers an order book and these orders are usually matched. Meaning the trader is setting the price using different order types. Typically, a crypto exchange will also allow traders access to margin trading and derivatives, but there are also classical spot market exchanges.

Many of them offer to trade crypto pairs, denominating prices in Ether or BTC. Another option is trading the market for stablecoins which in most cases means USDT pairs, but other stablecoins are widely available.

A Broker is very different from that model. He sets a price for the customer to buy or sell. The advantage of that model is a fixed price that is not influenced by the order size. The broker ensures that the trader can buy or sell a position without slippage and gets the price that he is asking for. Also, most brokers focus on the trade versus fiat. Meaning that they don’t offer BTC, ETH or any other non-fiat trading pairs.

Which one should I choose?

Most retail customers have no experience trading cryptocurrencies or any other market for that matter. Exchanges are offer professional tools for technical analysis and a variety of order types to trade the market under different conditions. However, these tools requite knowledge and skill to be used successfully.

The answer to that question is very simple for a beginner. They should use a broker that is giving them access to enter the market with fiat and provides an easy, convenient and secure marketplace to buy crypto. Once having gained that access and having acquired your first cryptocurrency you can also store your assets or transfer them to your own wallet. Once in profit or willing to sell, the broker will also offer you the opportunity to exit the market.

A more advanced user might like to use different platforms to get involved into derivatives or options markets. These are highly complex and risky products that can either be used for speculation or hedging an already existing spot position. But even an advanced trader will likely use the services of a broker to enter and exit the market. Many exchanges don’t even offer the option to buy with Euros or sell for cash-in on your bank account.

LiteBit is one of the most secure and trusted brokers worldwide. Serving millions of customers by offering a 24/7 access to one of the most complex markets in world. We offer to buy and sell 42 different cryptocurrencies and crypto tokens with tight spreads. That access is possible by either buying using bank transfer, credit card, Ideal or Klarna. Our customer support has a high availability that is unmatched by any of our competitors. Making LiteBit the most outstanding broker in the industry today.

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