How to choose an exchange
The exchange you choose will hold your money, at least for a while. Choosing well is mostly a matter of checking a few things before you deposit. This lesson gives you a checklist.
1. Is it allowed to serve you?
Start with the regulator in your own country, not the exchange's marketing.
- European Union. Crypto firms need authorisation under the MiCA regulation. The EU markets regulator, ESMA, publishes a register of authorised firms.
- United Kingdom. Crypto firms must register with the Financial Conduct Authority for anti-money-laundering checks. The FCA says registration is not an endorsement.
- Elsewhere. Look for your financial regulator's list of licensed or registered firms, and its warning list.
Search the register yourself. Do not follow a link the firm gives you.
2. How does it hold customers' coins?
US securities regulators suggest asking any company that holds your crypto:
- Does it keep most assets offline, in cold storage?
- Does it lend out customers' assets or use them as collateral?
- Does it pool customers' assets together or hold them separately?
- Is there insurance against theft, and what does it cover?
The answers should be in the terms of service. If you cannot find them, treat that as an answer.
3. What does its proof of reserves prove?
Some exchanges publish proof-of-reserves reports to show they hold customers' coins. These help, but know their limits. The US audit regulator warns that they "are not audits". They show assets at one moment, often leave out what the company owes, and give no assurance about what happens later.
4. How does it protect your account?
Look for:
- Two-factor login using an authenticator app or a security key, not only text messages
- An address allowlist, so withdrawals go only to addresses you have approved
- A waiting period after a password change
5. What does it cost?
Compare the full cost of a purchase: the trading fee, the spread, and the fees for deposits and withdrawals. An app that advertises zero commission usually earns from a wider spread. Lesson 15 shows how to work this out.
6. Can you leave?
Check that you can withdraw crypto to your own wallet, and what it costs. Some apps only let you sell back to them. If you cannot withdraw, you cannot take custody.
7. How has it behaved?
Search for the firm's history of outages, hacks, frozen withdrawals and regulatory action. A long, uneventful record is a good sign.
Red flags
- Sign-up bonuses or pressure to deposit quickly
- Promised or guaranteed returns
- Contact that started with an unexpected message or a new online friend
- No company name, address or regulator named
Being regulated lowers the risk. It does not make your deposit safe, and compensation schemes that protect bank accounts generally do not apply.
Does a proof-of-reserves report prove that an exchange is financially sound?
Check the regulator's register, the custody terms, the security options, the full cost and the exit before you deposit. Marketing answers none of these.
Sources
- European Securities and Markets Authority: Markets in Crypto-Assets Regulation
- UK Financial Conduct Authority: Cryptoassets anti-money-laundering regime
- UK Financial Conduct Authority: Crypto, the basics
- US Securities and Exchange Commission: Crypto asset custody basics for retail investors
- US Public Company Accounting Oversight Board: Exercise caution with proof of reserve reports
- ethereum.org: Ethereum security and scam prevention
- bitcoin.org: Exchanges
Facts checked against these sources on 8 October 2026.
The course by email
Five short emails to get you started, then one a month about what is new. No price tips and no hype.
Free. Unsubscribe any time. See our privacy notice.
Want your progress saved too? Create a free account.