For hundreds of years, we have exchanged financial assets with each other on dedicated marketplaces for a profit.
NYSE
An excellent example of this is the New York Stock Exchange. Ever since it was founded on 8th March 1817, traders and investors have bought and sold securities on this platform.
NASDAQ
Another notable example is the NASDAQ. It was founded on 4th February 1971 and provided access to technology stock. It was also the first fully digital stock market.
Financial Technology (Fintech) has come a long way since then. Today, we trade digital and fiat currencies on special markets known as cryptocurrency exchanges. Here is more about these distributed centers of digital commerce.
What exactly is a cryptocurrency exchange?
A cryptocurrency exchange is an online platform where you can exchange fiat and digital currencies. It is like a stock exchange for digital coins. There are many types of cryptocurrency exchanges today. They include:
Traditional Cryptocurrency Exchange
Traditional Cryptocurrency Exchange
This is a type of exchange which is modeled just like the traditional stock exchange. Here, buyers and sellers trade cryptocurrency based on their current market prices. In this situation, the exchange is essentially a middleman in these transactions. As a matter of fact, it has a team of administrators who provide support to traders and correct any bugs in the system. This type of exchange is described as a centralized one.
Traders on traditional cryptocurrency exchanges are usually charged a fee to process their transactions. Some of these types of exchanges deal purely in cryptocurrency. Others allow traders to exchange fiat currencies for digital ones and vice versa. For example, a buyer can exchange USD for Bitcoin or buy some Euros using Ether. Some examples of traditional cryptocurrency exchanges include Coinbase Pro and Kraken.
Some traditional exchanges are not administered by individuals. They are run by special programs known as Smart Contracts. These types are known as decentralized exchanges. A good example of such is IDEX. Notably, decentralized exchanges do not support the trading of fiat currencies.
A rule of thumb is that centralized exchanges normally require you to submit quite a substantial amount of information as you register as a trader. On the other hand, decentralized ones don’t need you to offer much information.
Cryptocurrency Brokerages
Cryptocurrency Brokerages
These are online platforms which allow traders to exchange cryptocurrencies at a specific price which is set by a broker. It is often the market price with a small premium attached. In this case, the transaction is between the buyer or seller and the broker. Some examples of Cryptocurrency Brokerages are Coinbase and Shapeshift. Buying or selling your digital coins through a cryptocurrency brokerage is a great option for users. Despite the fact that you’ll pay higher prices, it is more convenient because the broker does most of the work for you.
Direct Trading Platform
Direct Trading Platform
This is a platform where buyers and sellers can meet and match prices. This type of platform facilitates peer to peer trading. In the Direct Trading Platform, there is no fixed market price. The sellers set the prices for their cryptocurrencies. After that, the buyers can make purchases. If a buyer accepts the price which a seller is proposing, they can make an Over The Counter (OTC) exchange.
Some Direct Trading Platforms match the buyers and sellers using Smart Contracts. These resources are known as Decentralized Trading Platforms. Essentially, buyers indicate the prices which they are willing to pay for cryptocurrencies. After that, the tool matches this bid with an equivalent ask. In doing so, the system activates an exchange and both parties are satisfied. An example of such an exchange is Airswap.io.
Cryptocurrency Funds
Cryptocurrency Funds
Cryptocurrency Funds are combinations of digital assets which are managed by professional traders. They are designed for cryptocurrency value investors. You can buy into cryptocurrency funds and hold your digital assets. An example of such a fund is GBTC.
When you use a fund, it becomes possible to invest in cryptocurrency without having to buy it directly. While the Cryptocurrency Fund allows you to invest in the most valuable digital currencies today, it does not facilitate liquidation on demand. Hence, this type of exchange is only for investment.
Trading in cryptocurrencies can be very rewarding. You can achieve 100% profit or more in a very short time due to the volatility of cryptocurrencies. Through the information indicated above, you can find a perfect exchange to work with as you begin your journey as a cryptocurrency investor!