Crypto exchanges work similarly to regular stock exchanges and the only difference is that on a stock exchange, traders buy and sell shares, derivatives or assets, in order for them to profit from their changing rates, while crypto exchanges, traders use cryptocurrency pairs to profit from the high volatile currency rates.
Once registered to a crypto exchange you can start your cryptocurrency adventure by exchanging one cryptocurrency for another, the selling and buying of coins, and the exchange of fiat money (dollars or another currency) into crypto.
The crypto exchanges set the rate of the currencies, both tokens and coins. There are several factors that can affect the price but the most usual case depends on the actions of buyers and sellers.
Crypto exchanges vary, with different features and functions, some of them are made for traders (in which you usually pay less fees) and others for prompt crypto-fiat exchange (which they charge more fees).
What are cryptocurrency pairs?
Some of the big exchanges avoid using fiat money altogether by offering pairs only in crypto. The most popular crypto pairs are Bitcoin/Ethereum, Bitcoin/Litecoin or vice versa.
Trading crypto-currencies pairs gives you the possibility to profit from the currencies changing rates, and this is the primary business for the traders.
Don’t forget that the order of currencies in the pair is important. For example, if you think that Bitcoin may increase against USD in the near future, you should buy the Bitcoin/USD pair, with Bitcoin first placed and used second, and vice versa.
How come crypto exchanges have different prices?
This is one of the most popular questions ones you enter in the crypto space, and this happens because exchanges are not connected. The prices vary depending on the buy and sell trades on each exchange.
The price of Bitcoin or any other coin is not stable, and it’s always determined by the market at each situation, every exchange calculates the price of the different cryptocurrencies based on their own volume of trades, as well as supply and demand of the users. Keep in mind that the bigger the exchange is and the more market-relevant price you get.
Can you profit from price differences at various exchanges?
And here the questions come, in reality you can but only a small profit is possible if the price difference covers exchanges fees once you transfer them since you have to pay the gas price at which you are sending the coin at that prices moment.
Let’s say that you’re going to buy or sell your Bitcoin on one exchange for a higher price and buy them at another exchange for a cheaper price, keep in mind that you should calculate the fees as well that you pay for sending them from one exchange to the other, and most of the times it’s not worth it because the prices between the exchanges is very small.
I f we take for example the price of Bitcoin and we compare it with the 10 most popular exchanges we can see that the difference may be of 1% or max 5%, this depends on the volume, and typically the volume increases each time the prices rise or fall dramatically.
How to start trading and in which platform?
First of all, you need to buy some cryptocurrencies to start trading. In this case you should open your own account on a crypto exchange, then you transfer some initial amount of money, but a large amount of the exchanges don’t accept fiat money, in this case you can easily registrate to Coinbase and link your bank account to the crypto exchange. There are some crypto exchanges that accept credit cards or PayPal as well but in most cases, they make you pay a high % of fee.
Here you can find some of the most popular crypto exchanges: Binance, Bitfinex, Huobi, Kraken, Coinbase and Bitstamp.
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