Types of Cryptocurrency Exchanges
There are many types, including a direct trading platform, that offers peer-to-peer trading between sellers as well as buyers.
P2P allows buyers and sellers to deal directly and not through an exchange platform, and there is no fixed market price in this type of trade, which allows for traders to set their own exchange rates.
Then you have traditional cryptocurrency exchanges that are similar to a traditional stock exchange and where the buyers and sellers base their trade on the current cryptocurrency market. The exchange is the intermediary.
Then you have cryptocurrency brokers, which are exchanges that operate exclusively online. The cryptocurrency broker allows the customers to trade in cryptocurrencies at a price that is set.
This price is the market price with an added premium. These types of exchanges are perfect for people who are new to cryptocurrency trading, however, they are much higher in terms of prices when compared to exchanges.
Then you have cryptocurrency funds where professionals manage the pools of cryptocurrency assets. These funds allow members of the public to be able to purchase and hold cryptocurrencies through the fund, and you can invest in cryptocurrencies without the need to purchase them directly.
Requirements of Cryptocurrency Exchanges
Now, when it comes to the actual operation process, many cryptocurrencies need to follow certain laws of the country they are allowed to operate in.
These laws are different from one country to another, but generally speaking, they are related to the protection of the customer. The most important ones out of all of these are the anti-money laundering laws as well as the know your customer laws.
Anti-money laundering laws exist to prevent the potential of any illegal activity that is related to money coming across as illegitimate, while knowing your customer laws are there to ensure that the platform know who they are dealing with and in order to protect the existing customers, the business and the integrity of the business transaction itself.
Decentralized Exchanges Explained
These decentralized exchanges, put in simple terms, are exchanges that are operated without any central authority connected to them.
These exchanges work in the way through which they allow for peer-to-peer trading of digital currencies without the need to any exchange authority that might be used to facilitate the transactions.
There is a multitude of benefits when discussing decentralized exchanges. The main one being is that many cryptocurrency users feel that decentralized exchanges match the structure of the digital currencies themselves.
Many decentralized exchanges also have the benefit of requiring less information from the users than any other type of exchange.
If users want to transfer assets directly to different users, they eliminate the need for transferring assets to the exchange and reduce the risk of theft as a result.
Decentralized exchanges can be less susceptible to price manipulation and other fraudulent trading activity as a result.
Decentralized exchanges have to maintain their level of popularity in the form of both trading volume and liquidity.
Now, keep in mind that making deposits as well as withdrawals has a price associated with them, and this is highly dependent on the payment method chosen to transfer the funds themselves.
The higher the risk of a chargeback from a payment medium, the higher the fee.
Now, for those who are uninitiated, a chargeback is a charge that is returned to a payment card, and this occurs after a customer has successfully disputed an item on their account or statement of transactions report.
This can occur on debit cards, or on credit cards. Chargebacks can be granted to a cardholder for a multitude of reasons, and merchants will typically incur a fee from the card issuer when the chargeback occurs.
This means that making a bank draft or wiring money to the exchange has a lesser risk of a chargeback, especially when you compare it to funding options such as PayPal or credit or even debit card where the funds which are transferred can be reversed and returned to the user upon request to the bank.
Traders can also potentially have currency conversion fees.
A conversion rate is the ratio between two currencies and is most commonly used in foreign exchange markets. These typically designate how much of one currency is needed to exchange for the equivalent value of another currency.
These conversion rates fluctuate regularly throughout all currencies that are traded in markets.
Now, when it comes to the conversion fees, these are typically connected to the currencies that are accepted on the exchange itself.
Imagine it this way, let’s say you are a European, and you decide to transfer your main currency which is EUR, on an exchange that only deals in USD (United States Dollars). The bank will typically convert the EUR to USD for you, for a fee of-course.
Now, let’s assume that you are the kind of person who wants to reduce costs as much as possible. In your case, transacting with an exchange that offers and accepts your local currency is one of the best ways through which you can avoid the fee.
Now, aside from that, it is important to note that all exchanges have transaction fees that are applied to each completed buy and sell order carried out between the exchange. The fee rate is highly dependent on the volume of the specific type of cryptocurrency that is conducted.
Now, transaction costs are the expenses that incur when buying or trading goods or services. These transaction costs represent the labor required to bring a good or service to market.
In the financial industry, the transaction costs include the broker commission and spreads, which are the differences between the price the dealer paid and the price a buyer pays.