Trading 101

Trading 101

Trading 101


In 2011 there were about 2 or 3 websites where you could trade bitcoin. Today there are hundreds of providers and markets. Furthermore, you can now do all sorts of types of trading, with the most popular being limit orders on spot exchanges.

Different types of Exchanges

Exchanges can take on many forms and there is no single definition of what constitutes an exchange and what doesn’t. For the purpose of trading cryptocurrency on a regular basis, the most suitable option is a full order book exchange.

Full Order Book Exchange is an example of a platform which has an order book of sellers and buyers. Firstly the exchange acts as a matching engine to match fractional orders, then as an escrow or processing service in order to settle fund transfers.

Peer to Peer Exchange

In this format, a user will place an order which the buyer usually needs to match in full for the transaction to take place. You buy bitcoin for a specific amount at a specific rate, once the deal is made the platform serves the buyer with bank details of the seller and consequently the seller releases the coins from the platform by acknowledging receipt of funds.

OTC Exchange

Sometimes called a dealer desk and usually supported by an underlying notification system, because it is mainly used by traders who have large orders. Placing these orders may negatively influence markets with low liquidity.

Decentralised Exchange (DEX)

A new phenomenon, partly because it doesn’t really have a target audience, is a DEX. The idea (which doesn’t really work due to the aforementioned reason) of a decentralised exchange or DEX for short,  is to have a fully autonomous exchange platform with no central control or authority. *Do Not confuse this with a distributed exchange where a centralised entity distributes their resources for redundancy purposes.

Brokerage Firms

These are companies that will trade bitcoin on your behalf, which they do via a traditional exchange or over the counter. Naturally, fees will be higher as these services are not necessarily intended for traders but rather an easy onboarding service.

Custodial Wallet Providers (Conversion Services)

The need for a bank like service gave rise to custodial exchanger wallet services. These are examples of companies which give you an application for your mobile that allows you to send and receive bitcoin as FIAT, but it comes at a price as you are likely to have a limited set of features and will pay slightly more on transaction and trading fees. As a result, you also do not control your private keys, so the bitcoin you own is not technically yours.

CFD Platforms

We have to mention CFD platforms. You wager on the price of a cryptocurrency going up or down. Furthermore, you can do so using cryptocurrency as a funding method, which technically makes it an exchange. Albeit only the value of the profit or loss for each trade.

There are many flavours of exchange platforms and some have a hybrid of services. We delve deeper into how you choose an exchange which is right for you in the next lesson


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