Crypto exchanges are marketplaces where you can trade cryptocurrencies. In some cases, you can also exchange cryptocurrencies for fiat (legal tender) and fiat for cryptocurrency. Some well-known crypto exchanges include: Binance, Coinbase for centralized; Idex, Electrum for decentralized.
This article will explain what a crypto exchange is, how to trade currencies on the “trading page” of crypto exchanges, and what all of this means in plain english.
Like trading on a stock exchange, you will most likely pay the current market value for the currency that you choose to trade. The market price of a cryptocurrency is determined by the supply and demand available in suck markets.
Cryptocurrency exchange should not be confused with “cryptocurrency wallets,” although you need a wallet to trade on a cryptocurrency exchange.
Some crypto wallets may offer exchange services within their platform, but these wallets are not to be confused with exchanges.
Usually, crypto wallets offering exchange services will charge a premium fee for the exchange transaction performed. This is because such companies enabling these wallet services will have to go through a crypto exchange themselves to complete the exchange transactions they made available to you in their wallet platform.
There are three types of cryptocurrency exchanges.
Centralized
Decentralized
Hybrid
Exchanges are by far the best platform for trading your crypto currencies at the market price that you find online.
When you log in to a crypto exchange platform, much of the features offered will vary depending on whether your exchange is centralized or decentralized.
Using an exchange to trade your coins comes with responsibilities. You could easily input wrong values when trading your funds and instantly trade it for bananas. Triple-check at every step.
Before start trading in a exchange, you will be prompt to open an account in the exchange platform. Once that is done, you will:
If decentralized, you will be prompted to unlock your wallet and send the funds to the exchange platform.
If centralized, you will have to deposit funds into a new wallet that you open within the exchange platform. Be aware that if you go this route, then you are entrusting your funds to the exchange. Read more about centralized and decentralized wallets.
Using a trading page, in any type of crypto exchanges is fairly the same.
Inside the trading page, you should focus on:
The currency pair that you want to trade. (What currency you own and are offering and what currency you want to receive in exchange.)
The order book. This is an exchange ratio between the currency you are selling against the currency you are buying, also called bidding and asking prices.
Currency pairs
Each currency is paired with another currency inside an exchange. Not all cryptocurrencies are paired with every other currency. Instead, most cryptocurrencies are paired only with significant cryptos in the market, such as Bitcoin, Ether (Ethereum) and USDT (Tether).
As per the currency pair, you need to make sure you are trading the right one; being in the wrong currency pair page and adding the wrong trading inputs can cause the trade to be automatically executed.
Order book
In the order book, you will be able to see all the open offers that are in the exchange market you chose. You do not see all offers in all exchange markets, only the offers listed on the trading page of the specific exchange market that you have logged into. For example, if you are looking at the offers of Binance Exchange you will not see the offers on Coinbase Exchange.
The order book lists open orders, the price point at which people holding or looking to buying the currency are offering to sell or buy. Traders wait for the price target to be fulfilled so that the transaction can be executed.
You will notice that the order book is split into two parts, the Ask and Bid prices.
Ask prices - stands for how much people are willing to sell their currency.
Bid prices - stands for how much people are willing to pay for the currency they want to perform the exchange.
You can open as many orders as you want as long as you have enough funds available to fulfill the orders.
It is essential to understand that if you add a trade into the order book, your trade will only be executed if the price target is met. Adding ask and bid offers in the order book leaves you at the mercy of the market. Depending on the direction of the market, your trade might never be fulfilled. You need to monitor your open transactions.
You can also execute trades on the spot by targeting your trade to the price of the market.
Regardless of whether you are using a centralized or decentralized exchange, you are responsible for inputting the value for each order transaction. As easy as it may sound, it is very common to make mistakes and add the wrong value in the order book. To reiterate, triple-check your order input before you make it available in the order book.
You can access exchange platforms from anywhere. All you need is a computer device connected to the internet. You should access exchanges only from your personal computer, and you should make sure that you take proper steps to prevent any malware or phishing sites.
Exchanges set the price of the cryptocurrency by the supply and demand in each exchange market. The last price paid for the trade is the market value of the cryptocurrency, until the next trade is executed. Large orders have distorting effects on market values (more on that in a future post).
For first-timers, it is a good idea to test the exchange platform before sending all your funds to it. You can start by sending small quantities of any given cryptocurrency.
Do a practice run of crypto trading.
Open an order in the order book. Try to sell at the current market price. Take your time to learn how the exchange interface works.
Withdraw your funds - you should check if there are any surprises in the process. Look for extra fees, delays in processing withdrawal transactions (not to be confused with blockchain congestion - when there are a lot of transactions to be processed and blockchain can not sustain them all).
A little practice can help you to avoid mistakes that can cause you to lose your funds. The more you train, the easier it will be.
Safe to say, you should only have the necessary amount of coins for your daily trades, inside an exchange. The remaining of your coins should be stored safely elsewhere.
We hope that you have found this article useful. Add your thoughts in the comments below.
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