Exchanges

HOW DOES AN EXCHANGE WORK?

Cryptocurrency exchanges are online sites where buyers and sellers are connected for the purpose of trading coins.
These sites differ from other types of online cryptocurrency sources in that they provide direct communication between buyers and sellers and much lower transaction fees.
These sites are designed to work in the same way as a digital stock exchange, instead acting as a marketplace for cryptocurrency trades.

These exchanges function around their viewable orderbooks, which provide a complete list of cryptocurrency buy and sell orders, which are known as bids and asks.
These orderbooks are the first place traders go to find information on a cryptocurrency’s price and potential future price.
The price of a cryptocurrency displayed is simply the selling price of the most recent trade on the exchange.
Because trades are happening so regularly, these prices will also change frequently meaning the orderbook is always updating.
This price determination is also unique to an exchange, so while popularity of a certain cryptocurrency may push its price higher on one exchange, it can often be valued lower on others.

However, rare price discrepancies would be significant or maintained, as traders will use multiple exchanges to find the best deals, which generally has a levelling effect on global market pricing.

WHAT DO THE EXCHANGE’S INDICATORS MEAN?

Other details found on exchange platforms include a cryptocurrency’s high and low.
These represent the highest and lowest selling price of single trades recorded over the past 24 hours, giving traders an indication of ceiling and floor parameters, or the popularity of a cryptocurrency and the limits of what traders are willing to spend.
Another important indicator of cryptocurrency popularity and future price on an orderbook is the volume counter.
The volume counter details how many of a type of cryptocurrency has been traded, usually over the course of the past 24 hours, as well as a representation of the same volume in a fiat currency value.
When there is a sudden or drastic change in price, it is usually accompanied by a large influx in trading volume.

High and low-price indicators show that buying cryptocurrency on an exchange is not as simple as purchasing something from a shelf.
Prices are always moving, depending on market trends based on cryptocurrency popularity.
This means currency uses a bidding system, where buyers name their price.
There are different methods in doing this on an exchange, and they are summarised in three different types of buy orders.

Using crypto: Exchanges

WHAT TYPES OF ORDERS CAN I MAKE?

A market order is the best way to guarantee a purchase request will be fulfilled.
This is because the request is made without a bidding price, instead relying on whatever the market determines the cryptocurrency’s worth at the time of the trade.
The benefit of a market order trade is the speed at which it is completed because there is no waiting for a matching selling price to be found to fill an order.
Instead, the order is quickly filled with the exchange’s lowest selling prices.
This can also be a drawback though as buyers fully reliant on the market can potentially miss out on sudden movements in the market allowing for better deals.

Market OrderMarket OrderThe opposite to a limit order, in that there is no waiting for a certain price to trigger a transaction, rather the order is lodged and confirmed at market price at the time of the order.

Limited orders Limited ordersSetting up an order that will only be executed under certain conditions, such as buying or selling only once a cryptocurrency reaches a certain price. These orders are also broken down further into limit buy and limit sell, depending on the order. enable traders to buy or sell their cryptocurrency at a price they decide, rather than the market.
While traders have the power to determine their price, they also lose the ability to dictate when an order goes through.
Lodging a limited sell order for a price deemed too high by the market may leave the order unfilled and idle until the market determines the price to be of decent value warranting buyers to take up the offer.
Limited orders Limited ordersSetting up an order that will only be executed under certain conditions, such as buying or selling only once a cryptocurrency reaches a certain price. These orders are also broken down further into limit buy and limit sell, depending on the order. work the same for buy orders, often going unfilled if the price is deemed too low by sellers until movement in the market brings the offer into play.
While there is never any guarantee a buy or sell limited order will ever be filled, they are a surer way patient traders limit their risks and better their chances of a return over a longer period.

Incorporating elements of limited orders and markets orders is a stop loss order, which is a fail-safe way for cryptocurrency investors to minimise potential losses.
This order is designed to trigger a trade request when a cryptocurrency’s price hits a certain low point.
Traders will always have a breakeven point determining when their investment will yield a loss rather than a profit.
This is usually the moment a cryptocurrency’s price falls below the price at which the cryptocurrency was originally purchased.
To avoid this, traders will put in place a stop loss order for a market sell order to be requested when the cryptocurrency’s price hits that predetermined low point.

stop loss orderstop loss orderAn order placed with a broker to buy or sell once the stock reaches a certain price.

DOES IT COST MONEY TO USE AN EXCHANGE?

Once cryptocurrency is ready to be purchased or sold using an exchange, there is still the matter of maker fees and taker fees Taker FeesCharged to traders when they add a market price trade request on an exchange order book that gets immediately filled..
For an exchange to function, it needs as many users as possible to be able to effectively fill orders and provide a working market.
To encourage more traders to use their platform, exchangers advertise low fees and favourable trading conditions, like added security or speed.

Once a trader is using an exchange, they are encouraged to continue using the platform and help it improve its performance by rewarding certain users.
These users are called makers, and they can be any trader on the platform if they place unique bids on the orderbook.
This is usually done in the form of limit orders or stop loss orders, because they are more likely to be unfilled offering other buyers and sellers opportunities to mingle and shop for price.
Takers usually come in the form of market orders matching with pre-existing orders and removing bids from the orderbook.
These orders are instantly filled and clear trading traffic from an exchange.
The more orders outstanding on an orderbook, the busier an exchange.
All users are charged fees for the use of an exchange, but makers are charged reduced fees, while takers are charged more.

FAQ

Can I exchange cryptocurrency for regular money?
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Cryptocurrency exchanges are online sites where buyers and sellers are connected for the purpose of trading coins and transferring fiat currency for cryptocurrency.

How does an exchange work?
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Exchanges function around their viewable order books, which provide a complete list of cryptocurrency buy and sell orders. These orderbooks are the first place traders go to find information on a cryptocurrency’s price and potential future price and to trade cryptocurrency.

What determines a cryptocurrency’s price?
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Prices are always moving, depending on market trends based on cryptocurrency popularity. Cryptocurrency uses a bidding system, where buyers name their price.

What is a market order?
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A market order is the best way to guarantee a purchase request will be fulfilled. This is because the request is made without a bidding price, instead relying on whatever the market determines the cryptocurrency’s worth at the time of the trade.

What is a limited order?
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Limited orders enable traders to buy or sell their cryptocurrency at a price they decide, rather than the market. While traders have the power to determine their price, they also lose the ability to dictate when an order goes through.

What is a stop-loss order?
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Incorporating elements of limited orders and markets orders is a stop loss order, which is a fail-safe way for cryptocurrency investors to minimise potential losses. This order is designed to trigger a trade request when a cryptocurrency’s price hits a certain low point.

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