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What are Cryptocurrency Exchanges and how do they work?

 

March 8, 2021 (Investorideas.com Newswire) Cryptocurrencies have taken the world by storm. Many people are entering the crypto market as traders and investors because of so many money making opportunities. Even those who have little experience and knowledge of the crypto market can make profits through trading with the help of an automated trading platform or a trading robot, such as Bitcoin Equaliser.


Unlike traditional fiat currencies, cryptocurrencies only exist in digital form. Hence, most people do not know how they can buy and sell a cryptocurrency in exchange. To remove your doubts, here is some information about cryptocurrency exchanges and how they work.

What is a Cryptocurrency Exchange?

Cryptocurrency Exchanges are digital platforms that allow and facilitate trading crypto assets. Contrary to popular belief, crypto coins are only one of the digital assets that you can trade at such exchange platforms.

In reality, these cryptocurrency exchanges work a lot like a stock market. The biggest difference will be how the traders will be making a profit.

How do Cryptocurrency Exchanges set prices?

No cryptocurrency exchange will set the price of Bitcoin and there is no official price for cryptocurrencies globally. Many different factors can have an impact on the prices of cryptocurrencies, these will also include the actions of buyers and sellers. Other factors will include trade volume and the supply and demand of cryptocurrencies from users.

How do Cryptocurrency Exchanges earn money?

A cryptocurrency exchange will have many revenue streams, such as listing fees, market making, commissions, and fund collection for ICOs, IEOs and STOs.

Trading Fees

Every trader or investor who uses the exchange platform to buy or sell crypto assets will be required to pay a certain fee to the exchange, also known as commission. The cryptocurrency exchanges will charge a small amount of trading fee as they facilitate trades between buyers and sellers. Famous exchange platforms will charge as low as 0.5% as low charges will attract more buyers and sellers.

Listing Fees

Newer cryptocurrency exchanges may charge listing fees as they have low trading values and the earnings may not be enough to run the platform.

Market Making

You might be able to buy cryptocurrencies for a better price at some exchanges. In market making, the exchange will swap that trade with another exchange platform and cancel the previous trade. The cryptocurrency exchange will provide complete liquidity to a specific cryptocurrency by asking the users to submit both bids. The next step will be limiting orders on the cryptocurrency exchange.

The traders collect profit from multiple trades and the cryptocurrency exchanges make profits in the form of commissions.

Fund collection

Cryptocurrency exchanges let companies organize a token sale on the exchange platform. The platform will act as a storehouse where users will be able to buy chips before they are listed. The exchange platform will collect fees from the companies.

The cryptocurrency exchange will be paid a commission on total earnings. This could mean a big payout to exchanges if the final amount is large enough.

Are Cryptocurrency Exchanges safe?

Most of the cryptocurrency transactions are done on centralized exchange platforms. In such exchanges, buyers and sellers have to trust a third party with their crypto assets. Transactors use the exchange platform and the network of their peers in order to perform transactions safely.

The private access key is important to complete the transactions. The users may lose access to their crypto assets if they forget the key. However, most of the exchange platforms are very safe and have security measures in place that make it difficult for hackers to rob the crypto assets.

A decentralized crypto exchange will not store the keys to crypto assets,, making all attempts of hacking futile. Decentralized exchanges settle the transactions between the buyer and the seller and allow peer-to-peer transactions.

Other security measures

Cryptocurrency exchange platforms use many different methods to keep crypto assets safe. Additional security measures are in place to keep digital wallets of the users safe from hackers.

Multi-factor authentication is important as passwords alone will not guarantee foolproof security. Hence, most exchange platforms use multi-factor authentication for digital wallet access. The users will need to go through two step validation. The user may have to enter the correct password and then enter the code sent to the user's registered phone or email.

After entering the password and the code, the users should be able to access their crypto assets. The cryptocurrency exchange might send an email to the registered email address for every unsuccessful and successful login attempt.

Cryptocurrency exchange platforms are a lot like stock exchange platforms. They use security technologies in order to keep the assets safe. The users can trade crypto assets easily and safely on the platform without any problems.

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