The adoption of digital assets has increased the popularity of crypto exchange platforms. With the growing popularity of cryptocurrencies, people have started researching more about cryptocurrency exchanges. But do you know what Crypto Exchange is? How do they work? If not, then this article will be beneficial for you.
Crypto Trading isn’t as easy a task as it seems; users need to register on the crypto exchange to start trading. You should know that you cannot buy or sell your favorite cryptocurrency from your bank directly. You must register an account on global crypto exchanges to start trading. Then it would help if you converted your fiat currencies into digital assets.
All the transactions of buying and selling cryptocurrencies are performed on a platform known as a Crypto Exchange. Many crypto exchanges are available in the market, and users must choose a crypto exchange with all the necessary features. So, let us know more about crypto exchange and how it works.
What is Crypto Exchange?
A Crypto exchange is a marketplace where users can buy and sell crypto and convert it into fiat currency. The live order book is required to accomplish this task, so if you are looking to trade cryptocurrency, you will be required a crypto exchange.
An exchange with more traders will like to offer more prices relevant to the market because these exchanges determine the value as per trading volumes. It also indicates that there are different prices of Bitcoin on various exchanges.
Generally, there are three ways to trade crypto, centralized exchange, decentralized exchange, and hybrid. However, cryptos can also be bought from some investing apps and can also buy by placing peer to peer trades. Let us know more about these three types of Crypto Exchanges.
What are the different types of Crypto Exchanges
There are three different crypto exchanges; let us brief them more.
A Centralized Exchange has the interference of a third party, which ensures that all the transactions should go as per intentions. As a result, centralized exchanges offer quick transactions, ease of use, high Liquidity, and many other features.
A Centralized Exchange also has its order book and all the reserves held in its vaults. Well, there is always a potential risk in this exchange because a single entity controls everything, increasing the risk of getting attacked all the time.
A Decentralized Exchange allows users to make transactions of buy and sell cryptocurrencies through direct and peer-to-peer transactions. There is no role of any intermediary, which also helps in reducing fees.
If we talk about security, decentralized exchanges are more secure than centralized ones because there is an entity to hack, so stealing crypto isn’t easy. The transaction fee is also lower, and the transaction gets placed quickly.
But there are some drawbacks of a decentralized exchange, and users need to be skilled because it doesn’t offer easy transfers from banks, debit card, or credit card to buy crypto. Moreover, it doesn’t provide buying crypto with fiat currency; users need to buy one cryptocurrency for another.
Hybrid Exchange is a combination of both centralized and decentralized exchanges. It allows users to enjoy centralized exchange features while ensuring the security and freedom of decentralized exchange.
Hybrid Exchanges are working to bring some more adoptions to their exchanges. Moreover, to make users happy, they plan to add more features for optimum security and convenience.
How does Crypto Exchange work?
Setting up an account on a crypto exchange will allow you to buy or sell cryptocurrencies at your convenience. However, users should know about crypto exchange fees before setting up an account to find the best platform. Every crypto exchange has different trading fees, and users should know about them.
Well, many types of orders can be placed on these crypto exchanges. Two orders are widely used on the exchanges, limit order and market order. Let us understand about Limit and Market order.
For example, you must place a limit order if you want to trade Bitcoin at $21,000. When the market reaches $21,000, the exchange will instruct you to trade your funds at a pre-defined price. Your order can be placed only sometimes. The order will be executed only if someone is ready to buy/sell BTC at a specific price.
While in the market order, your funds will be traded at best possible market price. A market order will try to give the best market price. It is a safe trading idea where you can assume Liquidity when the order book remains unchanged.
Every crypto exchange comes with a different set of features. Users should always choose an exchange providing more convenience and an easy transaction process. Trading on apps is very convenient because of the simple user interface, and placing orders is easy.
Pros and Cons of Crypto Exchange
We hope that you got some knowledge about crypto exchange, But you should also know that these crypto exchanges also have some pros and cons, just like other things. So let us brief these things.
Pros of Crypto Exchange-
- It is an easy and convenient trade, especially for beginners.
- It allows buying and selling cryptocurrencies in a regulated environment.
- Some exchange also provides tax forms, making calculating crypto tax suitable.
- Trades can be placed easily after knowing the values on the order book.
Cons of Crypto Exchange-
- There is always some risk of theft, hacking, and fraud with users.
- Users cannot access their funds and tokens if the platform goes down.
- As of now, some individuals don’t have the right to hold their private keys.
Factors to Consider before choosing a Crypto Exchange
Here are some critical factors you should consider before choosing a Crypto Exchange.
Before moving further, you must ensure that the crypto exchange covers your Jurisdiction. Many exchanges are limited to specific localities, and it will impact their target market. Every country has different crypto regulations, and we should be familiar with them. Some crypto exchange websites have a website address specific to a particular country.
It is always necessary to check how much Liquidity the exchange is giving you. An exchange having a higher volume of trades and more money-changing hands will work in your favor. To have high Liquidity, you should choose an exchange with higher Liquidity or search for an exchange with users holding more assets and trading frequently.
If there are a small number of orders, buyers may get higher prices while the seller receives a lower price because of inferior Liquidity.
As we have already said, every crypto exchanges charge different fees, and we should consider this point. The exchange and trading apps vary widely in terms of prices, but everyone charges something. So be very sure to understand the terms of payment they are asking to place trades.
On many exchanges, users get some discounts on trading fees by paying it from their native token instead of paying with the currency pair they will trade. Moreover, users should also know about maker and taker fees, which are the transaction cost that occurs when some new orders are placed and filled.
As we all know, every exchange has some issues, and defining the best crypto exchange is quite tricky. However, you can choose an exchange for a long time and have the least associated problems. You can find the best exchange by reading reviews on the Internet.
Reading the security practices on the website is also a great option to learn more about exchanges. Well, some exchanges will insure your funds, which is a great option. But still, these policies are not extensive, and that’s why doing your research is mandatory. We all are looking for the security of our funds, and it will not make sense if we are not possessive about it.
Buying or selling cryptocurrencies on an exchange seem simple, but it doesn’t look so far. However, there is a lot of complication on these exchanges, and users require more scrutiny than traditional stock.
The main thing to remember is that the blockchain, crypto wallets, and exchanges are highly unregulated. That’s why it is necessary to learn the basics to advance about these exchanges and complex topics to choose the best platform.
Fortunately, crypto is evolving rapidly, and the demand for crypto exchange is increasing. We hope that this information makes some sense. For more information, you can bookmark our website.