Understanding the difference between an exchange and a broker: A guide for all Crypto traders

There have been several cases of cryptocurrency traders who felt disappointed after purchasing Bitcoin and other Cryptocurrencies from a given broker and found themselves unable to transfer them to their storage wallets or other crypto exchange to sell. Some felt they have been scammed or denied the right to transfer their purchased crypto assets. Well, this is caused by the gross misunderstanding of the nature of services provided by the brokers. Forex brokers are known to provide an option for crypto trading on their platforms as only CFDs. Trading Cryptocurrency as CFDs means there is no legal ownership of the assets purchased. This means the assets purchased cannot be transferred from the broker's platform to one's storage wallet or any other desired destination. We have therefore highlighted these differences between a broker and an exchange for all crypto traders to know the difference.

Difference between a broker and an exchange

Ownership of assets: There is no ownership of crypto assets purchased through a broker. This is because all crypto assets purchased through a broker are considered as CFDs. This is quite different from trading Cryptocurrency using an exchange as the latter offers traders legal ownership of assets purchased when they are bought using the spot trading position.

Wallet address: Brokers do not provide wallets for trading cryptocurrency on their platforms. The trader only speculates on the future prices of the underlying crypto assets and does not need to possess them in his wallet. This is very much different from trading Crypto using an exchange; in which case a unique wallet address is provided for the trader to store all the assets purchased through the spot trading platform.

Transfer of assets purchased: It is not possible to transfer any asset purchased using a broker to any other destination. This is because all assets purchased through a broker are CFDs. Hence no legal ownership is given to the trader who purchased them. He can only sell them when he desires and receive his equity in the currency he trades with. This is not so with trading using an exchange. Generally, all crypto exchanges grant the right to the trader to transfer his assets to any other storage wallet when they have been purchased on the spot position.

Number of Cryptocurrency provided: Only a few Cryptocurrencies are provided for trading by brokers on their platforms. This is very different from crypto exchanges that provide wild range of crypto assets for the trader to make his choice.

Spot trading VS CFD trading: It is not possible to trade Cryptocurrency using the spot position on any brokerage platform. Only CFD trading is possible using a broker. This is quite different with Crypto exchanges that provide both the spot and CFD trading options for the trader to make his choice.