Cryptocurrency trading has become a popular investment method for both institutional and retail traders. The number of user-friendly platforms is growing, but information about which platforms and investment products to choose is not available to everyone.
Cryptocurrency exchanges operate similarly to stock exchanges. They allow users to trade cryptocurrencies with each other, and some have expanded the ability for their clients to now trade fiat currencies (such as USD or EUR).
There are two types of cryptocurrency exchanges: centralized exchangers (CEX) and decentralized exchangers (DEX). Centralized cryptocurrency exchanges require users to deposit funds into the platform before trading. Decentralized exchangers are built in such a way that the user has full control of his funds at any given time.
Centralized exchangers
Each centralized exchange has its own mechanism for storing user funds. Centralized exchanges that do not offer their users the option to trade fiat pairs often have lower fees than those that do. Many centralized exchanges also charge fees for withdrawals from the platform.
Centralized exchanges store all transaction information in their own ledgers. This approach has its advantages, because client information is not viewable on the public blockchain. However, this also means that clients often have no way to quickly confirm the completion of a transaction or ownership of funds.
Daniel Skuronski, CEO of DX Exchange, told Finance Magnates:
Many of these exchanges add market makers who pump up the volume by buying and selling, as well as handle mutual brokerage trades. For the same purposes, many exchangers create trade bots.
Decentralized exchangers
In essence, decentralized exchangers perform the same function as centralized ones - these are platforms on which users can trade cryptocurrency. Despite this, there are a few key differences.
First of all, decentralized exchanges are cryptocurrency markets that do not rely on third parties to hold user funds. In other words, when you use such an exchanger, you are the only one who has access to your funds. Centralized exchangers require depositing funds before starting trading..
In addition, decentralized exchanges do not offer fiat-to-cryptocurrency exchanges to their users.
Due to the fact that decentralized exchanges do not store their users' funds, they are generally considered more secure. Despite this, according to a report from TABB Group, “the technology [behind decentralized exchanges] is not yet sufficiently mature and, in any case, there will always remain a need to attract buyers and sellers to provide liquidity.”
Coinbase UK CEO Zeeshan Feroz told Finance Magnates that he is confident that “despite the immaturity of decentralized exchanges, they definitely have potential, and As the ecosystem grows, they will become more and more popular.”
Cryptocurrency CFDs
As cryptocurrencies entered traditional financial spheres, a huge number of cryptocurrency trading instruments appeared on the market. Cryptocurrency CFDs (contracts for difference) are becoming more and more popular among institutional and retail investors.
CFDs are contracts entered into between a trader and a brokerage firm. The owner of a CFD has the right to receive the difference between the current value of the asset and his predicted value. If a trader makes an incorrect forecast, he will have to cover the losses. CFDs are an incredibly risky proposition for new investors. Only a few companies have the right to offer CFD trading to their clients.
Bottom Line
Regardless of the platform you choose, you should always first check whether the company is legitimate. Check the availability of licenses and other permits at the site.
Fortunately, the cryptocurrency community is very active in sharing its experience of using various exchangers and other types of trading platforms. Before deciding which platform to choose, you should study it as best as possible.
We wish you good luck!
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