Everything You Need to Know
The world of cryptocurrencies can seem complicated at times to beginners. With over 1000 active cryptocurrencies and hundreds of exchanges it is important to fully understand the fine differences. Let's have a look into the world of exchanges, exchangers & trading platforms to avoid rookie mistakes.
Exchangers are pretty straight forward and easily confused with exchanges. At times exchangers & exchanges are integrated and sometimes they function separately.
The main function that exchangers provide is easy & online purchase of cryptocurrencies via credit card. Exchangers tend to usually deal with only Bitcoin & Ethereum, and most do not offer altcoins. All a client must do is go through a short KYC (know your client) process, select the amount of Bitcoin they'd like to purchase, and type in their credit card.
Exchangers play a big part in the mass adoption of cryptocurrencies & Bitcoin as it vastly simplifies the process. Other ways to purchase cryptocurrencies would be a direct bank transfer to an exchange or to swap fiat to crypto in person.
This makes allows anyone to purchase Bitcoin in a matter of minutes as opposed to other methods, which could take days.
A few good examples for exchangers would be Circle & Simplex.
Bitcoin ATMs are pretty self-explanatory. They are physical ATMs which allow users to purchase Bitcoin in exchange for cash or via credit cards. They can be seen as a type of exchanger with a physical presence. The only catch with Bitcoin ATMs is that many complain of very high fees.
Bitcoin ATMs can be found in nearly every big city. There are over 20 in the greater New York city area and approximately 25 in London. The fees and rates vary from operator to operator. Some include buy & sell limits. You can find a Bitcoin ATM near you, using coinatmradar.com
As previously mentioned, many exchanges make use of exchangers to allow clients to purchase Bitcoin. The Bitcoin would be added to the clients account which he can later trade for other cryptocurrencies. There are hundreds of live exchanges online, most offering slightly different rates, fees and KYC procedures.
Rates can be calculated via an orderbook, which connects buyers to sellers or can be decided by the exchange. If the rates are decided by the exchange, it is essentially a market maker & centralized.
In nearly every major city, there are physical exchanges. These are places where anyone can enter and buy cryptocurrencies for cash, or trade various cryptocurrencies. Some of these exchanges offer OTC (over-the-counter) meaning that there is no record of the trade other than in the blockchain and no KYC. Most however, have heavy regulations in place.
Many physical exchanges also provide other services. This includes lectures, educational courses and meetups to name a few.
Good examples for physical exchanges are the Bitcoin Center NYC which is located near Wall street, and the Bitcoin Embassy in Amsterdam.
A growing trend in the world of cryptocurrencies is decentralized exchanges. They are referred to as DEXs at times. They remove any need for human interaction from the exchange's part. Users trade directly in a peer-to-peer fashion. This is usually done via orderbook although new forms of decentralized exchanges have risen.
An interesting decentralized exchange would be Bancor. They make use of a liquidity pool and a price discovery algorithm which automatically calculates the price. The liquidity pool also guarantees that Bancor constantly have a supply of tokens to offer.
Another growing trend is the roll-out of launch pads for ICOs (initial coin offerings) on exchanges. ICOs in the past were ridden with false promises, inaccuracies, and listing issues. Bogus or just plain bad ICOs hurt the ICO scene and the cryptocurrency industry as a whole.
By using a launch pad, an ICO receives a much-needed stamp of credibility. It also provides ease-of-mind knowing that the ICO will be listed on that exchange once it concludes.
The 1st exchange to introduce the concept was Binance. Houbi and others followed Binance's lead shortly after. Notable ICO's that took use of launch pads include Bittorrent Token & Fetch.ai.
There are many ways to trade & profit from Bitcoin and cryptocurrencies. The traditional way is using an online exchange, swap currencies and hold on to them, hoping that their price will climb. New ways have been developed with time, most notably margin trading.
Margin trading of cryptocurrency platforms is widely available.
This allows traders to make an educated wager on whether the price of a cryptocurrency will go up (call) or down (put). Traders do not necessarily own the asset that they are wagering on and can receive leverage from their broker. Leverage is essentially borrowed funds from the broker that carry trading requirements.
It is essential to mention that this form of trading is considered high-risk high-reward and not for the faint-hearted.
There are many different platforms to trade cryptocurrency margins. Some platforms are integrated into exchanges, such as BitMex's margin trading platform. Others were in the past Forex trading platforms that made the leap into cryptocurrencies. This includes Plus500 & eToro.
A benefit of margin trading platforms is essentially extra security. Instead of paying fees to transfer your funds from a wallet to an exchange & vice versa or taking a risk by leaving your funds at the exchange, you can use a margin trading platform. No margin trading platform has been hacked as of yet, while dozens of exchanges have.
Some of these platforms allow trading bots, stop losses & social trading to make trading easier. Others make use of their reputation and age in the industry to draw in clientele.
Margin trading platforms are growing in popularity today. Many established exchanges have added it as an option or are considering it in the near future. It has even been rumored that Binance, the world's most popular exchange by adjusted volume is considering it.
The Bottom Line
If you want to purchase Bitcoin, we would highly recommend working with an exchanger, as it truly simplifies the process. If you'd like to purchase an altcoin as a long term investment, use a reputable exchange. Last but not least, if you're into day trading you might want to consider a margin trading platform. Good luck trading!
Written by Jonathan Ganor
Writer & cryptocurrency aficionado