The crypto market is growing by the day. It’s pretty difficult to find someone today who hasn’t heard about cryptocurrencies. With each passing day, more people are joining the fold. Some come as investors, others as casual traders. And we haven’t even included the crypto aficionados who want to learn more in the list yet.
Source- MoneyControl
And we think even crypto loves all this limelight. It’s always there in the news! Sometimes for good reasons and sometimes bad. For example, the recent breaking news when the government claimed that eleven Indian crypto exchanges evaded paying INR 81.54 crore in GST!
But before you get any ideas from your beloved Netflix about using crypto as a tax evasion tool, stop right there because crypto has more good than bad. Also, you don’t want to end up in jail, so getting back to the good.
Now, who would deny that cryptocurrency has become a hot topic these days? And considering the endless opportunities that arise from crypto trading, you need to have the right platform. So, here we are to help you with the basics of cryptocurrency exchange. Because you need to understand what is crypto exchange and how crypto exchange works if you want to mint a ton of those dollars.
So, let’s jump to crypto exchange basics without wasting any time because time is money in these volatile markets.
Key Takeaways
- Any system that trades cryptocurrencies for other assets is referred to as a cryptocurrency exchange.
- The cryptocurrency exchange’s primary function is like that of a traditional financial exchange. It facilitates the purchase and sale of these and other digital assets.
- A cryptocurrency exchange is also referred to as digital currency exchange (DCE).
- Centralised, decentralised and hybrid are the three primary types of cryptocurrency exchanges.
What is Cryptocurrency Exchange?
Looking to cash in the crypto fever by buying and selling cryptocurrencies? Opening an account with a cryptocurrency exchange is exactly what you should be doing. A cryptocurrency exchange functions like an online brokerage platform. It provides you with the tools you need to get into action and buy and sell digital currencies and tokens in the likes of Bitcoin, Ethereum and Dogecoin.
A cryptocurrency exchange is any service that enables the match of buyers with sellers. Cryptocurrency exchanges make crypto a liquid asset for traders on a large scale.
When most people talk about a cryptocurrency exchange, they refer to centralised custodial platforms like Coinbase, Kraken, and Binance. These platforms ease the trading of cryptocurrencies. These work in a similar fashion to Robinhood, Charles Schwab, Zerodha, etc., that matches buyers and sellers for trading in the stock markets.
A cryptocurrency exchange also enables traders to convert one digital currency into another. For example, your Bitcoin can be converted to Litecoin. A cryptocurrency exchange also makes it possible for a trader to buy regular currency. For instance, you can buy Ethereum using US dollars. You can also convert Ethereum into regular fiat money in your preferred currency. Ensure that your choice of cryptocurrency exchange has the provisions.
How Does the Crypto Trading System Work?
Now that you’ve plunged into the crypto universe and have a fair understanding of what is crypto exchange, it is only rational to get to know more about how crypto exchange works. Because a good understanding of a cryptocurrency exchange will help you jump start your crypto portfolio. So, let’s get down to it.
Cryptocurrencies can be traded using a CFD account. They are derivative instruments that allow you to wager on whether the value of your selected cryptocurrency will rise or fall. Prices are expressed in traditional currencies, such as the US dollar, and you never actually own the cryptocurrency.
Given their unfamiliarity with how crypto trading works, navigating this emerging market can be as scary as it is exhilarating for complete newcomers. But don’t be concerned! We’ll walk you through the subtleties of the profitable world of cryptocurrency trading and get you familiarised with everything you need to get started.
So, if you’re someone who has had already used a CFD account and been into crypto trading for a while now, it’s time you make a move up the ladder! And by moving up, we mean bot trading.
Trading bots for crypto are automatic trading systems that trade on your behalf. They enable you to automate the execution of trades when certain parameters are met. These bots, among other things, take into account current prices and volatility levels.
Most automated crypto trading programs work as APIs. API trading bots act as intermediaries, trading on another exchange on your behalf. 3Commas is an API for automated trading on platforms such as Binance, Coinbase Pro, Bitmex, and Kraken.
Automated trading bots that work on the blockchain are the newest and most secure form of automated crypto trading. Tokenised crypto trading leverages smart contracts on the blockchain rather than a website or API. Smart contracts are pieces of code that conduct financial operations on their own, and they’re usually uploaded to Ethereum’s network because it’s the most popular cryptocurrency that supports them.
What Moves Cryptocurrency Markets?
Cryptocurrency markets are driven by the economic forces of supply and demand. Due to their decentralised nature, they are immune to many economic and political issues plaguing traditional currencies. While there is still a great deal of ambiguity surrounding cryptocurrencies, the following factors can have a big impact on their prices:
Supply
Supply refers to the total number of coins (cryptocurrency tokens) and the rate at which they are released, destroyed, or lost.
Market Capitalisation
It is the value of all the coins in existence at a given moment and how users perceive this to be developing.
Press
Cryptocurrencies often see price fluctuations based on how they are portrayed in the media and how much coverage a particular coin gets.
Integration
The price of a crypto token in the markets is influenced by how the crypto integrates into the existing infrastructural frameworks, such as e-commerce payment solutions.
Key Events
Major events across the globe, such as regulatory updates, security breaches and economic setbacks, are crucial to determining and influencing the price of a coin.
Did You Know?
FTX, a cryptocurrency exchange, attained a valuation of a whopping $32 Billion in 2021. They also purchased the naming rights to the Miami Heat’s home area, now famously called FTX Arena.
Centralised vs Decentralised Cryptocurrency Exchange
The crypto craze is rising by the day. So, if you have FOMO, we strongly suggest you register with a cryptocurrency exchange to trade in the hottest cryptos.
But, before you jump to it, did you even know there are two types of cryptocurrency exchanges? If not, we’re here to guide you through the basics of a centralised crypto exchange and a decentralised cryptocurrency exchange so that you can trade with confidence.
| Basis of Difference | Centralised Cryptocurrency Exchange | Decentralised Cryptocurrency Exchange |
| Security | Should have very stringent security measures to avoid hacking | No chance of hacking or any other security breaches |
| Popularity | Very popular | Not popular yet |
| Features | Have an array of different features to offer | Does not have many features |
| Liquidity | High liquidity | Low liquidity |
| Speed | Orders get executed in less than a second | Orders take longer to execute |
| Regulation | Centralised cryptocurrency exchanges are regulated and follow certain compliances. They require licenses from regulatory authorities. | DEXs are not easy to regulate and hence do not require any licensing from regulatory bodies |
| Control | It lies in the hands of the platform | The users hold control of this type of cryptocurrency exchange |
| Fees | Charge a fee for carrying out transactions | Usually, there is no or minimal fee |
Pros and Cons of Centralised Cryptocurrency Exchanges
Now, if you’re thinking of starting your crypto trading journey through a centralised cryptocurrency exchange, here’s what you should know first.
Centralised cryptocurrency exchanges are trading systems that operate similarly to traditional brokerage firms or stock exchanges. A firm owns and operates a CCE, and it has complete control over all transactions. Users of CCEs do not have access to their exchange account’s wallets’ private keys. Because transactions may only be done through procedures given and certified by a central authority, this places all of the confidence in the hands of the exchange operators.
| Pros | Cons |
| Liquidity: Constantly high liquidity | Custody: You don’t fully control your own money when entrusting a cryptocurrency exchange with your private keys. |
| Volume: Centralised cryptocurrency exchanges still account for most of the trading volume | Security: Centralised cryptocurrency exchanges are a prime target for criminal actors since they hold many assets. The most well-known exchange hacking attacks targeted centralised crypto exchanges. (e.g., Coincheck, Mt. Gox, BitGrail, NiceHash, and Bitfinex). |
| Speed: Fast transaction speeds on centralised cryptocurrency exchanges contribute to better user experiences and enable complex trade types | Manipulation: Several centralised cryptocurrency exchanges have been accused of abusing their opaque nature by engaging in insider trading, creating fictitious assets, and manipulating prices. |
Pros and Cons of Decentralised Cryptocurrency Exchanges
If you’re not convinced about using a centralised cryptocurrency exchange, here we are with some vital information about a decentralised cryptocurrency exchange that’ll help you make better decisions.
DEX or a decentralised cryptocurrency exchange, like cryptocurrencies, is run by no companies because it is based on blockchain (distributed ledger) technology. A DEX, in this case, does not hold any of the funds, positions, or information of its customers and instead acts as a matching and routing layer for trading orders.
| Pros | Cons |
| Custody: You don’t need to give up control of their private keys to trade. | Trade Failures |
| Security: Most decentralised crypto exchanges use some form of distributed hosting to minimise the risk of infiltration and attacks. | Expensive Cancellations |
| Listing Diversity: There are nearly 2900 cryptos, with many altcoins only accessible through a decentralised crypto exchange. | Order Type Limitations |
Word to Remember
Private Key
A private key, like a password, is an enormously big integer used in cryptography. Digital signatures that may be easily validated without revealing the secret key are created with private keys. In cryptocurrency transactions, private keys are used to prove ownership of a blockchain address.
Conclusion
Kraken, CoinEgg, Gemini, Binance! We’re not talking about mythical creatures or the internet’s latest buzzword. These are all cryptocurrency exchanges! And all thanks to the exponential growth in cryptocurrency trading, now more than ever, people are looking for the best cryptocurrency exchange to partner with to invest effectively.
So, if you’re all fired about becoming a crypto trader, head to eToro (The best cryptocurrency exchange with low trading fees), Binance (The best Bitcoin exchange with huge asset selection), Coinbase (A respected cryptocurrency exchange featuring a free crypto wallet), Webull (Cheapest cryptocurrency exchange for casual investors) or Kraken (The best cryptocurrency exchange for stalking) and start your crypto journey.
Though we’ve suggested our top picks of a cryptocurrency exchange for you, we suggest that you always do your own research before you start, and then the sky is the limit for your gains. So, happy crypto trading!
FAQs
Most cryptocurrency exchanges ask you to enter your name, email, personal information, and proof of identity to open an account (to follow KYC standards).
Most cryptocurrency exchanges ask you to enter your name, email, personal information, and proof of identity to open an account (to follow KYC standards).
There are various factors to consider when picking a cryptocurrency exchange. They include security, costs, and the types of cryptocurrencies available.
Hybrid cryptocurrency exchanges try to combine the advantages of both centralised and decentralised exchanges into a single platform. Their goal is to combine the ease of a centralised exchange with the security and flexibility of a decentralised exchange for end users.
Check if an exchange covers your jurisdiction before deciding to trade on it. Some exchanges are only available in certain areas. The exchange’s jurisdiction indicates its target market, and some exchanges have country-specific website addresses.
While no exchange is completely secure, companies operating the longest, have the most clients, or have had the fewest problems may be worth considering.
Some exchanges insure some or all of the funds held by their users. Make sure you’ve done your homework.
