Cryptocurrency: Trading on an Exchange vs Online Brokerage

Online brokerages are now offering cryptocurrency products for investors in Singapore. Find out what's the difference between trading on an exchange vs an online brokerage.

Still a relatively new industry, you may not have known that there are multiple ways to trade cryptocurrency in Singapore. Most retail investors interested in taking a bite out of the crypto-pie have explored popular crypto exchanges like Binance or Coinbase. Banks and online brokerages also want a piece and more cryptocurrency products are available for investors to buy and sell.

So what is the difference and why should you consider a traditional exchange vs an online brokerage?

Crypto Exchanges

One of the main differences is that investors can own cryptocurrency directly on an exchange and transfer those funds (or keys) into their own crypto wallet. Much like the stock market, it is just another way to buy and sell an asset. One of the benefits of an exchange over a brokerage tends to be lower fees and minimum purchases.

exchange minimum trade amount and fees

Also, when you purchase from an exchange you directly own the cryptocurrency and can store your unique encrypted cryptographic key. That being said, it can be a hassle to move your key offline onto an external device. You don't have to look far to read horror stories online of investors losing or corrupting their usb stick, losing tens of thousands of dollars worth of crypto.

Crypto exchanges have also been known to be relatively unsafe to hacking. Partly due to a lack of regulation, recovering lost funds to hacks or scams have been frequently reported in the media. So keeping large amounts of crypto on an exchange is not recommended.

Online Brokerages

Brokerages offer an alternative market for cryptocurrency by filling in some of the gaps that traditional exchanges have had. Similar to ETFs, some online brokerages are offering crypto exchange-traded products (ETPs) that track the underlying security and cryptocurrency futures trading.

With this structure, retail investors are able to combine convenience and security. You don't have to transfer cryptocurrencies into your offline wallet, worry about cybersecurity attacks, or losing your wallet. In short, some of the most recognized financial institutions are offering investors a crypto product that lowers some of the security risks that we've seen traditional exchanges exhibit, while providing a lower risk profile by tracking the market.

brokerage minimum trade amount and fees

There are downsides to using an online broker. For starters, you don't directly own the crypto. You own a security that tracks the entire cryptocurrency market. You get to enjoy less volatility and security, but it comes at a premium.

Which One Should You Choose?

There are trade-offs to both methods of investing in cryptocurrency and individual consumers must decide which they prefer. If you are interested in investing in cryptocurrency, but have hesitate due to the higher risk, check out some of the best online brokerages in Singapore. It is important to thoroughly research the exchanges or companies you plant to use when trading cryptocurrencies.

Good questions to ask:

  • How much do you want to invest in Crypto?
  • Are you willing to maintain the security of your investment yourself?
  • Do you want to directly own cryptocurrency?
  • What is your risk appetite?

Both online brokers and exchanges have benefits and drawbacks, but it is clear that as financial institutions are becoming increasingly interested in crypto, investors will see more products on the market.

Resources From ValueChampion

Stephen Lee

Stephen Lee is a Senior Research Analyst at ValueChampion, specializing in insurance. He holds a Bachelor of Arts degree in International Studies from the University of Washington, and his prior work experience include risk management and underwriting for professional liability and specialty insurance at Victor Insurance. Additionally, Stephen is a former US Peace Corps Volunteer in Myanmar (serving between 2018-2020), where he continues to provide business development consulting services to HR companies in Asia Pacific.