Once you have ventured into crypto and bought some Bitcoin the next step for many is to purchase some Altcoins. This means it is time to hit the exchanges in search of your altcoin.
In this article, we will give you a brief overview of crypto exchanges and how they work.
Crypto Exchanges – How They Work?
A Crypto exchange is an online digital marketplace where you can buy and sell cryptocurrencies.
It can be broken down into 3 sections.
- First, you can buy and sell coins.
- Next, you can exchange one coin for another.
- And finally which more exchanges are starting to include is the exchange of fiat (normal money) into crypto.
Crypto exchanges set the rates and this includes both coins and tokens. The crypto price per coin normally relies on the activities of buyers and sellers, however, when it comes to crypto many other factors affect the price like FUD.
A Crypto exchange works very much like a traditional stock exchange with a twist. You can buy or sell on the exchange and the exchange acts as a middle person who takes a fee for every transaction.
The distinction is that, on a stock exchange, investors buy and sell assets in order to make money from the changing rates. In crypto, traders use the exchanges to profit from the high volatile rates using various crypto pairs like BTC/VET and others.
Crypto Exchanges – What Are Pairs?
Pairs are basically two different coins or currencies that you can use to buy or sell a coin.
In the image above you can see some examples of pairs.
Let’s look at the first one VET/BTC. This means I can trade the Coin VET (VeChain Thor) with BTC (Bitcoin) or vice versa.
The order of currencies in any pair is extremely important. For example, if you think that VET might increase against BTC you should buy the VET/BTC pair, with VET first place and BTC second.
If you think that VET may fall against BTC, then you would purchase the BTC/VET pair. This is the same for all pairs whether that is BTC/USD, USD/BTC, BTC/LTC etc.
Looking at the current 30-minute chart, VET is going through an uptrend so you would have bought with the VET/BTC pair.
Most crypto exchanges offer pairs only in crypto, and that is why sites like Coinbase are so popular.
You can buy you Bitcoin, Ethereum and Litecoin using fiat, then once you have these you send them to the exchange and start buying or trading your altcoins.
Trading throws up many questions and we have covered most of them in our basics category including day trading, indicators, and the psychology.
One thing you will see a lot of is exchanges with a difference in price. The price of any coin is determined by the individual exchange and the current demand in both buy orders and sell orders.
When there’s a difference in price between exchanges traders will make profits. This is known as arbitrage.
Arbitrage is taking advantage of a price difference for cryptocurrencies between different exchanges and markets.
What is the best Cryptocurrency Exchange?
We recommend Binance. Binance is one of the biggest Crypto exchanges with most of the Altcoins available to purchase. Plus it has more features than sites like Hit BTC, Yobit, Poloniex and others.
That’s enough for this article – Crypto Exchanges: Explained.
As usual, if you have any questions leave them below.