Crypto exchanges are platforms that people can use to buy and sell cryptocurrency. For instance, someone may use a US crypto exchange to trade traditional dollars for cryptocurrencies or to trade one cryptocurrency for another. Some crypto exchanges may also offer custody — meaning they secure private keys needed to prove ownership of one’s cryptocurrency — and other services.
This article explores how crypto exchanges work, types of crypto exchanges, and potential considerations when using these platforms.
Crypto exchanges can help facilitate the crypto trading process, matching the right bids to the right orders for the right prices. These exchanges may provide tools and resources to make trading convenient and accessible. There can be exchanges where the seller of the cryptocurrency is the exchange itself, while other exchanges operate as the intermediary between two entities (a buyer and a seller) on the exchange.
The different elements of a crypto exchange include:
An order book is considered a crypto exchange's running list of buy and sell orders made by traders. This list is commonly sorted by price and may be used to determine when to execute orders for an optimal outcome.
There are generally two main types of crypto exchange orders:
There are two main types of crypto exchanges:
Crypto exchanges can also be categorized by their level of regulation, including:
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An exchange wallet is considered a digital hub or account where someone can store their cryptocurrencies for buying, selling, or safekeeping. Exchange wallets can be kept secure with private keys or alphanumeric passwords. People may set up their own wallets or use a wallet provided by a crypto exchange platform. On centralized exchanges, keys are often not shared with the wallet holder.
Exchange wallets are considered either “hot” or “cold”. Cold wallets can be used to store cryptocurrency offline, such as on a USB drive, where it can be kept secure until it's ready to be traded. Hot wallets are used to store cryptocurrency online, where it can be traded in the crypto market.
Trading crypto can be complex, especially for those just getting started. Once someone understands the way crypto works and its volatile nature, there’s still the matter of navigating exchanges. Consider these notes when looking for an online cryptocurrency exchange:
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