Simply put, cryptocurrency exchange is a platform where you trade cryptocurrency…

Cryptocurrency exchanges are websites where you can buy, sell, or trade cryptocurrency from other digital currencies or traditional currencies such as the US dollar or the euro. For those who want to trade professionally and have access to sophisticated trading tools, you’ll probably need to use an exchange where you’ll need to verify your username and open an account. If you only want simple and occasional transactions, you can also use platforms that do not require an account.

Centralized and decentralized exchange

Central Exchange: A centralized exchange is a third party that connects individuals and institutions that want to exchange between themselves. The role of centralized exchange is to reduce the friction on the exchange by providing liquidity (“market liquidity” refers to the degree to which a market such as the stock market or the real estate market of a city allows this) buying and selling of assets) at stable prices and convenience through an account that receives funds and positions. The most popular exchanges and the exchange of cryptocurrencies such as Coinbase, Binance and Kraken are implemented in the form of centralized exchanges.

Decentralized Exchange: unlike centralized exchanges, a single body does not coordinate decentralized exchanges. Instead, they run in a distributed registry, just like the cryptocurrencies themselves. This structure means that a decentralized exchange has no funds, positions, or customer information and serves only as a correspondence and routing level for trading orders. Decentralized Exchange significantly increases security by not storing customer information or assets on a central server. This means that hackers cannot steal anything in the event of a security breach. This is an improvement over centralized exchanges, which, as history has shown, are likely to be pirated. Distributed Exchange is the most flexible in terms of compliance and generally provides users with a completely anonymous experience. For this reason, decentralized exchanges are often the first addresses where new parties are listed.

Types of exchanges

The “traditional” Cryptocurrency exchanges: These exchanges are similar to traditional stock exchanges, where buyers and sellers are negotiating the current market price of cryptocurrency (with the exchange playing the middle-man). This type of trading platform usually charges a fee for each transaction. Some of these types of exchanges only deal with the cryptocurrency; others allow the exchange of currencies such as the US dollar for currencies such as Bitcoin. The GDAX, Coinbase is an example of this type of exchange, just like Kraken. Among the exchanges are those managed by third parties (they have an intermediate stage that can support and correct problems) and decentralized exchanges and peer-to-peer exchanges (without intermediaries).

Trading Exchanges: These are sites that connect buyers and sellers and charge a fee for each transaction.

Direct trade: These platforms allow direct exchanges between individuals, allowing people from different countries to exchange currencies. Direct exchanges do not have fixed market prices, but each seller establishes their own exchange rate.

Brokers: These are websites that anyone can visit to buy crypto-currencies at a price set by the broker. Cryptocurrency brokers are similar to foreign currency traders. Coinbase is a good example of this type of exchange. Shapeshift also provides a similar service (you can change the type of token for another). This is the simplest solution for new users because it is simple and easy; you pay slightly higher prices than the stock exchanges.

What to look for before participating in an exchange:

It is important to do some researches before starting to trade. Here are some things to check before doing your first operation.

Reputation: The best way to learn about an exchange is to review the opinions of individual users and known industrial sites. You can ask questions on forums such as BitcoinTalk or Reddit.

Fees: Most exchanges would have had to pay for information on their websites. Before you register, make sure you understand the deposit, transaction and withdrawal fees. Rates may vary considerably depending on the exchange rate you use.

Methods of payment: What payment methods are available on the exchange? Credit and debit card? Bank transfer? PayPal? If payment options for an Exchange account are limited, it may not be appropriate to use it. Keep in mind that buying cryptocurrencies with a credit card still requires an identity check and a higher price because of the increased risk of fraud and higher transaction and processing fees. The purchase of cryptocurrency transfers will take much longer, as banks need time to process them.

Verification Requirements: The vast majority of Bitcoin trading platforms in the United States and the United Kingdom require an identification check to make deposits and withdrawals. For some exchanges, you can remain anonymous. Although checking, which may take a few days may appear painful; it protects the exchange against all types of fraud and money laundering.

Geographic constraints: Some specific user functions offered by the exchanges are only available in certain countries. Make sure that Exchange you want to join has full access to all tools and features of the platform in the country where you live.

Exchange rate: Different exchanges have different rates. You will be surprised how much you can save when you buy. It is not uncommon for prices to fluctuate up to 10% or more.

Bottom-line

Cryptocurrency Exchanges are places where you can convert one type of digital asset into another through trading pairs. A trading pair is a market between two assets, e.g. Ethereum and Bitcoin, which allow you to exchange one for other. Many exchanges only cryptocurrency pairs, but some also support Fiat pairs, such as the US dollar and Bitcoin. A centralized exchange supports the custody of your money for the trade. Since many of these exchanges are unregulated, you should carefully consider an exchange before giving them your assets. A Cryptocurrency exchange is a powerful tool that allows clever investors to access liquid markets and a large number of digital assets and is a necessary component of a rapidly growing cryptocurrency ecosystem.

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