Cryptocurrency is a fairly new concept for many people. The first time people started talking about digital money was in January 2009, when Bitcoin appeared on the scene . As you can imagine, the crypto industry is still in its early stages of development.
An example of one of the largest
Businesses in the crypto sphere is a cryptocurrency exchange, which brings in significant profits daily. Today, there are several types of crypto exchanges, and new ones appear almost every day, for example, decentralized or derivative. What are their differences?
In our article, we will look at the types of cryptocurrency exchanges and their differences, separately compare decentralized and centralized exchanges, and tell you what the difference is between them.
How to Buy and Trade Cryptocurrencies
Traders want to buy digital assets and exchange them with each other. For this, the industry needs crypto exchanges, as they help users buy and sell cryptocurrencies. Moreover, some crypto exchanges integrate fiat gateways within their functionality. This means that you can use your bank account or credit card to buy crypto assets.
Different types of crypto exchanges
Use different approaches to running their business. Some platforms attract customers with a simple and user-friendly interface, others with low trading fees, others train users from scratch, while others are focused on professional traders.
Let’s take a look at the different types of platforms that allow you to buy and trade cryptocurrencies.
Classic exchanges
These cryptocurrency exchanges work like regular stock exchanges. You can use your fiat or cryptocurrency to exchange assets by placing: a market order , which is instantly matched with bids and bids already in the order book, and thus filled. a limit order , which will be placed in the order book and will remain there until it is filled.
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2. P2P cryptocurrency exchanges
This type of exchange works not only with cryptocurrencies. P2P exchanges are also very popular in traditional markets. They are presented in the form of over-the-counter (OTC) platforms, where you sell and buy assets from other how much does an e-commerce website cost? individuals or companies, but on confidential terms. Here you will not find an order book, and you will not notice a direct impact on the price of the underlying asset. In the crypto industry, an example of such a platform is the site LocalBitcoins.com, where demand meets supply through peer-to-peer trading. In most cases, this process occurs without the participation of intermediaries, but some OTC platforms charge a commission for mediation.
OTC platforms primarily deal
Large volumes of cryptocurrency orders that could affect the price of the traded asset when trading on traditional exchanges. Their mailing lead services are usually used by large venture capital companies, hedge funds, and, importantly, cryptocurrency miners.As a rule, the largest exchanges not only have a good reputation, but also high trading volumes and liquidity. Consequently, the trading spread on these exchanges is not as large as on other types of exchanges, which we will discuss in the following sections. Some trading platforms, such as Stormgain or XCOEX, also perform liquidity aggregation , i.e. they collect buy and sell orders from other sources. As a result, the trader receives a price close to the average market price with a minimum spread.
3. Brokers and CFD trading
A broker helps buyers and sellers find counterparties for trading and exchange. It is also worth noting that the broker itself can act as a counterparty. The intermediary (broker) will take a commission for its services, but will ensure fair and safe trading for both parties. The broker can also give users the opportunity to trade CFD instruments. This means that you can buy and sell almost all assets using this type of instrument: from stocks to cryptocurrencies. Unlike the classic exchange process carried out on the stock exchange, CFD trading does not involve physical delivery of the traded asset.
4. Derivatives exchanges
What is a derivative exchange and what opportunities does it offer? In the derivatives market, you trade the price of the underlying asset, so you can take advantage of various advantages to significantly increase your profits in case of successful trading. One of the biggest advantages of derivatives exchanges is that you can trade with high leverage. Typically, these platforms use financial instruments such as futures or perpetual swaps.
Types of Cryptocurrency Exchanges
Centralized exchanges
Centralized Exchanges (CEX) are the most famous and traditional exchanges in the cryptocurrency industry. Here you can trade both cryptocurrencies and fiat money. Another feature of such platforms is that they are under the centralized management of the companies that own them.
CEX is a centralized platform where buyers and sellers meet. The principle of CEX means that someone is responsible for storing your assets.
Here you can use the order book, and on some advanced exchanges you can find tools for technical market analysis.
The biggest advantage of such an exchange is that CEX is easy to use and has a powerful UI and UX, as well as speed. In order to start trading, you just need to register with your email and write down your password.
