The Basics of Cryptocurrency Exchange and How it Works
The incredibly competitive and highly profitable market for cryptocurrency exchanges has piqued the curiosity of potential traders eager to know more these lucrative platforms
With Bitcoin and Ethereum and almost all cryptocurrencies remaining in the headlines every day, more and more people are jumping into the cryptocurrency market. Everybody wants to know how to buy digital tokens. This is done through a cryptocurrency exchange, and to practice trading successfully, you need to know some basic rules of the game. But first, let’s understand what a cryptocurrency exchange really is, and it’s not all that complicated.
Cryptocurrency exchanges are websites where you can buy, sell, or exchange cryptocurrency for other digital currency, or traditional money like the US dollar or the euro. To trade more professionally or to have a bigger stake in cryptocurrency, an exchange that requires you to verify your ID at an open account is used. If you want to make the occasional straight forward trade or buy just a small amount you can also find platforms that don’t require you to verify your identification.
A seller of BTC or any altcoins deposits BTC with the exchange’s address. He can then use his positive BTC balance in the exchange to sell his BTC for dollars. Similarly, a buyer of BTC deposits USD with the exchange and then uses the balance to buy BTC from sellers. Cryptocurrency exchanges are virtually the only place where you can change fiat currency to convert into your cryptocurrency using credit cards, debit cards, bank transfers. Once you have the cryptocurrencies, you can move it from exchange to exchange, wallet to wallet, whatever you want to do privately. But to get into that flow you need to go to an exchange to buy your initial coins.
The exchange in many cases is just a simple medium that matches a buyer and seller when both the conditions of the buyer and seller are met. For example, in an exchange you want to sell your bitcoin for 10,000 dollars and you posted it, almost like ebay. A buyer who is willing to purchase at that price will buy it from you, in whichever denomination you may want to sell- it could be half a bitcoin or ten. Once all of the seller’s bitcoins are sold, he is gone. And then you always have to move to the higher price, or place an order that you are willing to buy bitcoin but only at a specific price and even specify the number of coins you will purchase. A seller who matches your specifications will then trade with you.
The fact is if you are going to invest more than a little bit you should find the lowest price and the best exchange to buy from, because these exchanges are not wired together and there are different prices on different exchanges. Here are a few things that you need to look into before you make your first trade: look at the reputation, the fees of exchanges, payment methods, and exchange rates.
Today almost all big exchange requires KYC – it stops, money laundering, terrorism, and fraud. You also need to know the geographical limitations. You don’t want to exchange in a Japanese exchange that is open only during Japanese working hours when you are living in the west coast of US. Then you have to look at order types, can you set limit orders or market orders. Market orders are that you just buy at market price, whereas limit order allows you to set a price where you are willing to make this position.
The market for cryptocurrency exchanges are hyper-competitive, and of the many Bittrex, Binance and PayBito are three you can start your expedition into this world of trade with, the source company of the last one mentioned, HashCash, currently being the largest producer of White Label cryptocurrency exchanges that has enabled clients to only trade in digital tokens but also run their very own trading platform.