Brokers vs Exchanges: Understanding the differences for investing in crypto

Binance, Coinhouse, Coinbase, Kraken, etc. There are a plethora of options for investing in cryptos, but there are two main families of platforms available to investors: exchanges and brokers. Which platform best suits your needs depends on your usage.

Exchanges (Binance, Kraken, etc.) are marketplaces where buyers and sellers meet. Brokers (Coinhouse, Bitpanda, etc.), on the other hand, are not real marketplaces. They are intermediaries who go to the exchanges on behalf of their customers. As a result, their operation is much simpler (buying or selling) and you don't need to know anything about trading to use them. But in some cases, brokers will be more interesting even for experienced investors.

Here are a few tips to help you find the type of player best suited to your profile.

👉 Check the regulations

According to Oliver Yates, CEO of Aplo, a broker specialising in cryptocurrencies for institutions, it is crucial to choose a regulated player in France. "It can be tempting to turn to foreign players offering attractive fees, but in the event of bankruptcy, recovering your funds can become a real headache, as the FTX scandal has shown," he adds.

So favour traditional platforms or brokers approved by the Autorité des marchés financiers (AMF) that offer cryptocurrency services, or those registered as digital asset service providers (DASPs).

This regulatory status, introduced in 2019, is essential for any company wishing to offer French users cryptocurrency exchange services, buying or selling against euros, or digital asset custody. So make sure the player you choose is authorised for the service you want to use.

👉 If you're not an active trader, opt for a broker

If your aim is not trading but rather simple exposure to cryptos, it's better to choose a broker rather than an exchange platform. These include Coinhouse, Bitpanda, Meria, as well as investment apps such as Shares, eToro or Trade Republic. We can also name Bitstack, which allows you to gain exposure only to Bitcoin.

A broker facilitates the process by acting as an intermediary for buying and selling cryptocurrencies, sparing you the direct management of these transactions. This simplicity comes at a cost: fees with these players are generally among the highest on the market.

"The user pays for simplicity, security and above all ease of use, which reduces the risk of mistakes that can lead to the loss of their cryptocurrencies, a common scenario for novices in this field," explains Oliver Yates.

Brokers are therefore a preferred option for first-time investors who do not wish to make an active commitment at first.

However, some advanced investors who wish to invest significant amounts may opt for brokers as they will be able to negotiate a fixed price without the customer having to worry about the liquidity of the platform. Buying or selling an exotic crypto for a million euros can be risky on an exchange because of the price differences in the order book.

👉 Exchanges for the more experienced

Binance, Coinbase, OKX, Crypto(.)com, Bitstamp and France's Paymium are all well-known exchange platforms on the market. They will allow you to carry out more advanced operations, such as automatically buying or selling when a price has been reached.

"Overall, they offer lower transaction fees than brokers. On the other hand, their more complex operation needs to be studied more closely," explains Oliver Yates.

Regulated platforms must provide details of their various exchange fees, crypto-to-crypto conversion fees and also the "spread", a term that refers to the difference between the purchase and acquisition price that exists on the market. The platform will then apply a commission on this spread.

"You also need to take a close look at the liquidity available on certain cryptos, which can be low on some exchange platforms, which can have an impact on the fees that the platform will apply to your transaction," warns Aplo's CEO.