Background
Similar to how currency exchanges work for fiat currencies, linking the buyers and sellers of different fiat currencies by providing a mutual platform of exchange, crypto exchanges also connect the buyers and sellers of several digital currencies. So in short, for those who do not know what an exchange is, it acts as a digital marketplace connecting different buyers and sellers of crypto.
As mentioned earlier, what these exchanges do is link buyers and sellers of crypto. Since this article discusses bitcoin, therefore our emphasis will be on bitcoin exchanges. Similar to the traditional fiat exchanges, where the purchasers and sellers can place orders. It should be known that after the order has been placed in the market and the individual can exchange their crypto with any other crypto of their choice, given they are available at the exchange to trade, the software (exchange) enables the individuals to limit orders for example the profit limit or loss limit against the client, contingent on the sale or purchase of BTCs. It is noteworthy, however, that in order to actually utilize the exchange platform, one has to register themselves on the exchange and verify and authenticate themselves through documentation etcetera.
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The account opens up for the user after all the requirements have been fulfilled by them, and all the necessary information and documentation submitted. After this successful authentication and verification, an account is created at the exchange for the user and becomes operational after the user transfers some money inside the account or starts using it by trading or exchanging virtual currencies i.e. bitcoin in this case.
Important considerations
While we have explained the basics of a bitcoin exchange, how it works and how one can begin trading on it. It should be known that there are some things which should be known thoroughly and considered when selecting a bitcoin exchange or a trading platform for your crypto.
For this purpose, we have created a short list of these things which our readers, who believe are either beginners or are looking to invest in the crypto market, can go through in order to learn about some important things while selecting an exchange. So, without any further ado, let’s discuss these things in detail, which are as follows:
Wallets
One really important thing to consider while you are going for a bitcoin exchange is whether the platform offers a wallet for the crypto as well. It should be known that these two, wallet and exchange, are two completely different platforms and phenomena. As we all know, an exchange is a platform where buyers and sellers of crypto connect in order to buy and sell virtual currencies from each other. On the other hand, a wallet is a virtual storage for storing your crypto and holding your bitcoins. In fact, it is the private key which is held and stored inside a wallet of the users. This key provides access to the bitcoins or other crypto, which are then used in a transaction or exchanged with other crypto. There is another name for these wallets, ‘E-wallets’, short for electronic wallets and these wallets are offered as an additional service by many exchanges all around the world, at additional costs.
Taker and maker
For those who do not know what a taker is, these are traders whose market orders are completed instantly. It should be known that such traders do not put any buying or selling limit on their orders. Contrary to this, a regular trader buys and sells with a market limit instead. According to this, the trader puts a certain value order and proceeds with the transaction when the bitcoin or any other crypto under consideration reaches that preset or predetermined value. Creators is the name for such forms of merchants. It should also be known that while some exchanges offer a configuration limit, others do not. Therefore, we advise our readers to check thoroughly prior to opting for an exchange whether they are actually providing you services in line with your needs and preferences or not.
Transaction costs or fees
Our readers should know that inflows and outflows in the account on the exchange are not free and have costs associated with them, also known as ‘transaction costs or fees’. This is due to the fact that there are multiple services being provided to the users when they opt for withdrawing or depositing a certain amount in their account. Also, these costs and their relative magnitude depends upon the transferring method of these funds. When there is a high risk of chargeback transfers, there is a greater fee charged to the user. Moreover, since bank drafts are a less risky and safer form of payment, therefore the fees associated with them are lesser, as compared to other payment methods such as credit cards or PayPal services, where a money transfer can be reversed if prompted by the customer of the bank. Other forms of fee are the currency conversion charges. It should be known that there is not a standardized fee structure and that it varies from one exchange to the other. Therefore, we advise our users to give proper attention and effort while selecting a reliable bitcoin exchange, which charges you with a reasonable fee, as they will have an impact on your earnings.
