How Does a Crypto Exchange Work?
The idea of trading digital currencies on a Crypto exchange was once unthinkable. Here we are years later, exchanging fiat currencies for altcoins to trade Bitcoin, Ether, Litecoin, Ripple… whatever the preference. Riding the hype wave created by cryptocurrencies and blockchain technologies, everyone has at least considered entering the newly emerged scene.
Are you juggling the idea of becoming a Crypto exchange user but want to learn more before you do? This article looking into how a Crypto exchange works is for you.
Why a Crypto Exchange?
With the creation of digital money, Crypto trading was the next step in the blockchain evolution. Compared to traditional exchanges, Crypto exchanges have more advantages. They are faster and cheaper – arguably, the two most valuable factors in today’s world. Our lives are busy enough for us to want things to happen fast, and our focus is on the price/quality ratio. Luckily, competition has created fantastic new opportunities – we can now freely choose affordable high-quality payment services.
Types of Crypto Exchanges
There are two types of Crypto exchanges: decentralized Crypto exchanges and Crypto exchanges operating through an intermediary.
Decentralized Crypto exchanges are similar to traditional exchanges that have buyers and sellers except there’s no intermediary, or third parties, interfering with the processes. This means that these exchanges are completely decentralized. In the case of a decentralised cryptocoin exchange, buyers and sellers are allowed to trade Cryptos directly, with no intermediaries.
However, keep in mind that there are some Crypto exchanges that act as an intermediary between buyers and sellers and collect fees to profit.
Advantages and Disadvantages of Crypto Exchanges
To put the pros and cons of coin exchanges in a perspective, let’s have a closer look at them.
The advantages of Crypto exchanges include the following points:
- Decentralization, or no concentration of power. Crypto exchanges are completely run by people.
- Lower fees or no fees. Crypto exchanges would charge a small percentage as commission for the service. How is that different from banks or Forex exchanges? The size of the fee is what matters. The fees for cryptocoin transactions are much cheaper than those of bank transfers, and generally cheaper than Forex. Very few exchanges charge no fees, but there may be hidden costs.
- Always open. Crypto-fiat exchanges are open 24/7, whereas Forex exchanges operate within certain business hours and close for the weekend. Cryptocurrencies, on the other hand, can be traded on the go, anytime, anywhere.
- No central point of authority, meaning that there’s no interference from public authority, such as government.
Speaking of the disadvantages of Crypto exchanges, volatility and security are the first things that spring to the surface.
Crypto prices have been insanely volatile as there are many external factors impacting the value of Crypto. Here’s an example! 1 bitcoin was worth $0.003 10 years ago, but by the end of last year, its value reached $17,900.
As the Crypto-scene is not governed by public authorities, the issues of financial security remains extremely relevant. We’ve said this before, but new regulations are needed to friend the side of public authorities and the Crypto market to come to final conclusions in terms of money laundering and terrorism financing.
How to Buy and Sell on a Crypto Exchange
First off, you need to register and verify your account (by passing the KYC process). The registration process should be easy as you will be guided step-by-step.
Almost all Crypto exchanges have the following basic features for trading:
- Buy orders
- Sell orders
- Stop limit orders
Most of Crypto exchanges also allow you to leverage your investment by using margin, borrowing money from the users or from the system.
Beyond the features mentioned above, there are other features to explore, depending on the platform. Take your time and get to know the platform. From there on there’s no better advice than to actually start trading!
Crypto Exchanges for Beginners
There are several exchanges that are recommended specially for beginners, and CoinMetro is one of them. Why CoinMetro? It’s the most advanced, all-in-one tokenized platform exchange.
CoinMetro’s Exchange focuses on both super-simple user interfaces and detailed visuals (for the pros). It was built with the purpose to simplify Crypto for all, regardless of experience.
To learn more about Crypto and to become a fully certified Crypto graduate, you should sign up to the CoinMetro Crypto Academy – a free educational course packed full of awesome information (coming soon)!
Have a great weekend!
The CoinMetro Team