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What is a cryptocurrency exchange?

If you’re looking to embark on a crypto trading journey and become a successful trader, it’s essential to understand what and how a cryptocurrency exchange works.

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Image: PC Tech Magazine

As the world is becoming more digital these days, cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, and many more are making noise in the financial community. Because of these digital currencies’ volatility and other essential features, more people are interested in joining the crypto trading business to get more returns and grow their wealth. 

To get started with this undertaking, they use a cryptocurrency exchange platform for their trading efforts. If you’re looking to be a professional crypto trader someday, keep reading this article to learn more about cryptocurrency exchange.

Cryptocurrency Exchange: What Is It?

Primarily, a cryptocurrency exchange refers to a virtual platform that allows the user to trade digital currencies, such as Bitcoin, Ethereum, and many more. Depending on the type of exchange you use, you can trade one cryptocurrency for another or trade cash for any digital asset. Moreover, people who navigate these platforms are known as traders because they buy and sell assets within a specified period. 

Typically, to provide trading services to their traders, cryptocurrency exchanges are open 24/7. When it comes to fees, these online channels for crypto trading tend to charge a percentage fee and a currency conversion fee when you deposit a currency that isn’t supported by the exchange. 

It’s also important to remember that not all exchanges provide the same features as the wallet does. Some platforms come with a wallet where you can place and store the cryptocurrency you bought, while others require the traders to transfer their digital currencies for trading purposes. 

Due to these essential differences, you need to select an exchange that provides the perfect combination of features, performance, functionality, and many more. To help you make a decision, compare different crypto trading platforms and choose the right one that suits your needs. 

Cryptocurrency Exchange: What Are The Different Types That You Need To Consider

Now that you’re familiar with what crypto exchange, like Bybit, is all about, the next step is to get to know the three common types of exchanges. Take note that if you want to become a successful trader, it’s imperative that you understand the different types of crypto exchanges so you can make the most out of your trades and profits. 

Below are the various types of exchanges to take note from the get-go:

  • Cryptocurrency Brokers: These are web-site based exchanges that let investors/traders to buy and sell digital currencies at a price fixed by the broker. 

If you’re a beginner, using this platform can be a great idea. But, since most of these exchanges are easy to use, you might have to pay a higher price for the work the broker does for you. 

  • Traditional Cryptocurrency Exchanges: These are similar to stock exchanges that allow buyers and sellers to trade according to the current market price of the digital currency they’re trading. Using this type of exchange platform requires the payment of fees for each transaction conducted. 

Also, some traditional crypto exchanges accommodate cryptocurrencies, while others allow the trading of fiat currencies, like the U.S dollar. 

  • Cryptocurrency Funds: These refer to funds composed of professionally managed cryptocurrency assets that allow the general public to buy and hold digital assets using a fund. 

With this type of crypto exchange, you can trade cryptocurrencies without the need to purchase it directly. 

  • Direct Trading Platforms: These refer to peer-to-peer trading channels used between the buyers and the sellers.

Unlike the traditional exchanges, direct trading platforms don’t rely on the market price since the sellers can set their own exchange rate, and the buyers can look for a price that they’re willing to buy. From there, the platform will match a buyer and a seller based on the rate provided by the latter. 

Cryptocurrency Exchange: How Does It Work?

Apart from knowing the different types of crypto exchanges, it’s also crucial to understand how these platforms work. Here’s how cryptocurrency exchanges work to make your crypto trading experience more pleasant: 

  • Make A Purchase – To buy, you should first fund their exchange account. In doing so, you can use a cryptocurrency or a fiat currency to complete the transaction. 

For the payment method, you can use a credit/debit card or money transfer services like PayPal. 

  • Place A “Buy” Order – Once you have funds on your exchange account, the next step is to place a “buy” order on the platform to request to purchase the cryptocurrency you want at a maximum price. 

From there, the seller will then place a “sell” order and offer to sell a specific amount of cryptocurrency at above the minimum cost. 

  • Exchange Acts As A Matchmaking Service – Once you and the seller place a buy or sell order, the platform will add this to the order book and will match you with the right seller based on your price. 

Conclusion

If you’re looking to embark on a crypto trading journey and become a successful trader, it’s essential to understand what and how a cryptocurrency exchange works. To make sure you’re on the right track, keep all the information presented above in mind so you’ll have a thorough evaluation of all your potential choices. 

Remember, by doing careful research, you’ll be confident in finding a crypto exchange platform that meets your trading needs. 

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