Posted in:

How Do Crypto Exchanges Work?

© by

Exchange platforms allow you to transfer money from your real-world bank account, buy cryptocurrencies with those funds, and trade that money for other currencies. The exchange rate at which your fiat currency is converted into a cryptocurrency depends, among many factors, on the demand and supply of that particular cryptocurrency. 

While most major exchanges use the current market price, a few have been known to charge a premium or a discount for some of their listed crypto assets.

What Is a Cryptocurrency Exchange?

A cryptocurrency exchange is an online platform where you can trade fiat currency (such as USD) for cryptocurrency or one cryptocurrency for another. There are dozens of popular cryptocurrency exchanges, so there is no “best” exchange to use.

Instead, each exchange has its own attractions and drawbacks. For example, some allow you to trade on margin (which means you borrow money from the exchange) or offer high leverage (which means your potential losses may be greater than your initial deposit). Thus, it’s advisable to do thorough research before choosing an exchange.

When you trade cryptocurrencies on the Bitcoin Prime trading system, it’s similar to trading any other financial instrument. You can buy or sell a currency pair by placing a market or limit order. A market order executes immediately at the current market price, and a limit order does so once the price reaches your specified amount.

The minimum order size differs across cryptocurrency exchanges. For example, Coinbase’s limit order sizes depend on the age of the account.

How Do I Deposit Money?

After selecting an exchange, you need to create an account with your selected service provider. As soon as you register for a new account, make sure to enable two-factor authentication (2FA) to protect your account with an additional passcode.

Just like you need an email address to open a free Gmail account, you will need a valid email ID for this purpose as well. You can also create two or more accounts on the same exchange platform if you want. The next step is to deposit money into your personal cryptocurrency wallet.

How Do I Buy Cryptocurrencies?

After you deposit money into your account, visit the trade screen and choose whether to place a market or limit buy order. A market order will execute immediately at the current market price, while a limit order does so once your specified amount matches the current market price.

After you place an order, the exchange will complete it as soon as possible. You can monitor your open orders under “My Open Orders” or simply track the price of your chosen cryptocurrency on the relevant market data screen.

How Do I Withdraw Money?

The withdrawal process is similar to how you would send money to another person’s bank account. You just need to provide your withdrawal address and then specify the amount you wish to withdraw.

After that, it takes a few business days for the money to get transferred from your account to your wallet.

Are There Transaction Fees? 

Yes! Just like there are fees for moving money from one bank account to another using an ATM or debit card, cryptocurrency exchanges have transaction fees too. These fees vary from exchange to exchange and depend on the size of your trade.

Final Remarks

You need to understand that cryptocurrency markets are highly volatile and risky. A single trade can make or break your financial situation, so it’s wise to invest only what you can afford to lose.

The best way to manage this risk is through proper money management. Instead of putting all eggs in one basket, consider splitting them into several baskets and diversifying your portfolio.