It's never been more important to choose a cryptocurrency exchange with care. Indeed, a number of cryptocurrency exchanges have recently been hacked, including Tether, Mt Gox, Bitstamp, Bitfinex and NiceHash. 

The most recent case involves Bitfinex, the world's biggest bitcoin exchange, which announced this week that it had faced a denial-of-service attack. This followed a warning on Monday from the SEC urging investors to ask exchange providers about "substantial risks of theft or loss, including from hacking." In Bitfinex's case, hackers had created hundreds of thousands of new accounts, generating stress on Bitfinex's infrastructure.

For those unfamiliar with cryptocurrency exchanges, they are websites which allow investors to buy, sell or exchange digital currency. A few of the most popular are ANX, Bitfinex, Bitstamp, BTC China, CEX.IO, Coinbase, Coinfloor and Coins.ph.

Mihail Lala, creator and founder of Wawllet Enterprises, which provides a multi-asset wallet and personal financial passport, explains that in terms of choosing among Bitcoin exchanges, potential customers should take several things into consideration.

Chief among them is the country where the exchange is based, which is where you'll have to wire the money to if you want to buy. "Even if you are dealing with a licensed and reliable exchange, your bank might reject the transfer," Lala notes. Other things to consider are fees, deposit or withdrawal limits, how reliably transactions are executed and the amount of liquidity, according to Lala.

Francisco Portillejo, CEO of Cryptalgo Holdings AG, a Swiss-based company which provides institutional clients with cryptocurrency trading tools, notes several things to look at when opening a new cryptocurrency account with an exchange:

  1. Whether the exchange requests KYC (know-your-client) and AML (anti-money-laundering) procedures. If the exchange does not request these, it's most likely a red flag. 
  2. Are there hidden fees or does the exchange declare there are no hidden fees? And are trading fees fixed or volume-based; volume-based is generally preferable.
  3. What are the fees for depositing and withdrawing funds? Pay attention to the fine print; some exchanges take 1% or even more of your funds just to transfer into the account or withdrawal. Also, look closely at limitations on withdrawals.
  4. Is trading on margin available for traders that trade a lot?
  5. What kind of security does the exchange have? For example, is two-step authentication available on each action within the account? If not, this is a red flag, since two-step authentication would prevent someone from stealing from the account even if they got their hands on your user name and password.

Do your research. 

Research and internet forums are a good way to search for feedback and see what issues existing users are dealing with.

Fabio Silva, CEO of Latoex, an end-to-end blockchain platform that allows companies to run ICOs, says: "Search for feedback about the exchange on internet forums like Bitcoin Reddit or the Bitcoin Forum. If you can't find any feedback about it, ask in those forums if your peers have used it and what their experience was. A good recommendation is always the best source." 

Note from the author: I personally use Coinbase because of its good reputation, strong security, reasonable fees, ease-of-use for beginners and the fact that stored currency is covered by insurance. Please note this article is not a recommendation but for informational and/or educational purposes only.

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