What is an exchange?

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Cryptocurrencies have exploded onto the scene, especially in recent months with bitcoins price skyrocketing from $3000 to nearly $20,000 all in the space of 3 months. They have taken the world by storm with people from all over the world wanting to get involved however possible. Some people have even taken rather extreme steps by taking out loans and remortgaging houses, just so they can be involved. I definitely do not condone such severe behaviour, but for those of you who want to get involved, where do you go to get your hands on cryptocurrencies like bitcoin or ethereum?

You would use the services of an exchange, which are websites where you can buy, sell or exchange cryptocurrencies for other digital currencies. There are platforms for people who want to trade these assets professionally, and have access to high tech trading features, such platforms should require you to verify who you are by providing a photo of your passport or driving license. However, if this is something that you want to do as more of a hobby, then there are platforms that you can use that don’t require an account.

When it comes to exchanges, there are different types, and it is important to pick the one that is going to best suit your requirements and current position. Finding the ideal platform is something that you will need to research in order to discover benefits or drawbacks depending on where you live. But the the types of platforms are:

  • Trading platforms: These platforms bring together buyers and sellers of various cryptocurrencies and take a fee from the transaction. One of the most popular trading platforms for cryptocurrencies is Binance, which offer an endless list of these digital assets to choose from. One of the first things you need to do when you join is exchange your fiat money into bitcoin, which you can then swap for other cryptos.
  • Direct trading: These particular platforms offer person to person trading, where users from different can exchange cryptocurrencies of their choice. Unlike trading platforms where they will extract a fixed fee upon the exchange, direct trading exchanges allow the seller to set their own exchange rate.
  • Brokers: These platforms are similar to Forex exchange dealers, where pretty much anyone buy cryptocurrencies at a price that is set by the broker.

Before you start buying your stash of bitcoin, there are a few things to look out to make sure it is a safe and secure exchange. Here are a few key points that you should look out for when conducting a sufficient level of research:

  • Fees: Reputable exchanges should clearly list what their fees are for exchanging currencies. Before you deposit your money, make sure that you clearly understand what the transaction and withdrawal fees are.
  • Reputation: In order to gauge whether an exchange can be trusted, the best way to do this is to look for reviews left by users.
  • Verification: Does the exchange platform require you to submit some form of ID? Good because verifications might seem like a giant pain, but at the end of the day, they protect you and the exchange against all kinds of scams. It is recommended that you stay away from platforms that don’t require you to confirm your identity.
  • Locations: Some countries only allow certain functions offered by exchanges. Make sure that the platform you want to join grants you full access to all of the tools and functions.

 

Cryptocurrencies are subject to extreme volatility, and should be approached with caution. Something that is worth $5000 today might suddenly be worth $2000 tomorrow, and these volatile movements have the potential to wipe out accounts in a matter of seconds. It is recommended that you become fully aware of the risks involved, and understand that on some platforms, losses can actually exceed deposits.