Strange as it may seem, many people often confuse a crypto exchange or broker with a crypto trading platform. This is due to the similarity of the mechanism of action of these services. In both cases, crypto is bought, sold, or withdrawn to a card or wallet.
However, the primary difference lies in how orders are processed. On typical arbitrage trading platforms, users often have to go through an order book to place their purchase orders. After doing so, they also have to initiate a withdrawal to a personal wallet to self-custody their funds. Although some trading platforms offer an exchange interface, these orders are usually routed through the existing order book, without the user being aware of it.
In contrast, crypto exchanges and brokers usually do not have a central order book for routing orders. Instead, a user merely places a purchase or sell order at the rate provided by the exchange platform. They also allow the user to provide a crypto wallet address that will receive the purchased coins. Thus, the user can buy and initiate a withdrawal to their personal wallet in a single transaction.
How A Cryptocurrency Exchange Or Broker Service Works (+Behind the Scene)
Registration: The process of getting registered with a crypto broker is relatively straightforward. Although most platforms now include a user verification process, the process is simplified to allow users to proceed with their main objective of buying or selling crypto. It would usually take less than five minutes to get verified if a user has all the required documents.
Asset Pricing: The rates that you see while using a cryptocurrency exchanger are usually slightly higher than the current market value of the asset. This is true even though the average value is still on par with what is quoted on other exchanges. The slight difference is called a spread and represents the profit the platform makes from the transaction. There might also be additional charges depending on the payment method you choose.
Payment Method: Most exchanges allow users to pay with a credit or debit card. Depending on the location, users can also fund purchases using wire transfers or other local payment options.
Wallet Addresses: If you’re making a purchase, then you’d usually be asked to provide a wallet address that will receive the funds. On the other hand, selling crypto means that you’ll transfer the funds to an address provided by the platform. Both transactions will be settled as soon as the exchanger receives the payment.
Transactions: A crypto exchange normally uses an application programming interface (API) from a trading platform to place buy orders and sell orders on trading platforms. However, the user is usually not aware, since payments are routed back directly to their wallet if they’re making a purchase.
Advantages and Disadvantages Of Using an Exchange Service
The activities of cryptocurrency exchanges are described in more detail at https://cryptex.net/blog/. However, below are the apparent advantages and disadvantages for users.
- Users can receive cryptocurrency directly to their wallet, because, unlike trading platforms, exchanges do not store it at their addresses.
- All user accounts with personal data are closed from search engines, and the platform’s activity is supported by a security certificate, and a secure server is allocated for the transaction processing.
- The simple interface, which consists of only basic buttons on the website, allows you to perform a quick transaction. The user does not need to wait until the exchange offers the best offer or the most favorable exchange rate.
- Crypto exchanges offer faster customer service than trading platforms since they have fewer users placing orders at the same time.
- Users do not have access to advanced trading tools such as limit orders or stop losses.
- Fees are usually higher than when using a trading platform.
Factors to Consider When Choosing an Exchange
You’ve probably heard about how investment platforms separate customers from their hard-earned money. Things are similar when it comes to digital assets. When choosing the right platform, you need to pay attention to the following:
- The platform should have been in operation for a long time (at least one year.). This period is quite enough for the service to gain some experience, and it can provide its customers with specialized tools, and most importantly – safety and security of funds.
- online reviews, as well as evaluations of partner companies, are vital. In order to find them, it is sufficient to refer to narrowly focused forums and platforms.
- A helpdesk that functions at any time of the day or night with no weekends or breaks is important in case you encounter an issue. The crypto market runs 24/7 and your preferred exchange should be available at the same time.
- Automatic or semi-automatic mode of operation, so the user does not have to wait to receive their money.
- Depending on your buying power, choose an exchange that has high purchase limits.
A crypto exchange or broker is basically different from a trading platform in how they operate. This article provided insight into how exchanges work and how they’re ideal for customers looking to make one-time purchases that are sent to their personal wallets. We have also reviewed the advantages and disadvantages of using these platforms and do hope that this guides you in making an informed choice.
Disclaimer: This article includes a link to promotional materials. Coinfomania does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. Readers should do their research before taking any actions related to the company stated in the press release.
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