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Similar to stock exchange allowing you to invest in stocks, cryptocurrency exchange is a online platform where you can buy and sell cryptocurrencies (what is cryptocurrency). Some also called it the bitcoin exchange that you can trade bitcoin or exchange bitcoin to other altcoins. Crytocurrency exchange also acts as an middle man between buyers and sellers.
Three Common Types of Cryptocurrency Exchanges
1. Traditional exchange
Traditional exchange allows you to purchase the USDT or BTC firstly with fiat cryptocurrencies, for example, US dorllars, Euro, Pound, Ruble, etc. based on the prevailing exchange rate or market price. The common payment methods are credit card, debit card, Paypal and wire transfer. Then, you can use USDT or BTC to exchange other popular and promising altcoins like ETH, XRP, EOS and so on. Notice that this type of trading platform always charges a fee for each transaction. In addition, traditional cryptocurrency exchange generally requires you to do KYC for identity verification, which means you should upload your ID card to the platform.
2. Over the Counter (OTC) exchange
OTC exchange is more like a decentralized trading platform which supports direct peer-to-peer transactions between buyers and sellers. You can only use supported fiat currencies to purchase cryptocurrency. OTC exchange doesn't provide a fixed market price for each kind of cryptocurrency. In other words, sellers can publish sale announcements with different prices for the same kind of crypto asset, and buyers can choose the lowest one to purchase. However, the amount of cryptocurrency that the one seller offered is quite limited. For example, if you want to buy 10 BTC, but the seller who sells it with lowest price only have 1, so you can only buy 1 from it, and from others with a higher price. We found that the price of a kind of cryptocurrency that sellers provide in the OTC exchange is always a little higher than its market price. Though it's more convenient to invest cryptocurrency directly with fiat currencies in OTC exchanges, investors are more willing to buy cryptocurrency in a lower price in the traditional crypto exchanges.
3. Cryptocurrency futures exchange
Cryptocurrency futures exchange, namely, provides futures contract trading. A futures contract is an agreement to buy or sell a particular cryptocurrency at a predetermined price at a specified time in the future. You can leverage the futures trading which means you can enter a larger trade with small amount of cryptocurrency that you hold. To conclude that, cryptocurrency futures trading allows you to make profits on when the market up or down, and maximize your profits with X times leverage added. This type of transaction is higher risk, but it allows you to set the stop-profit and stop-loss to control and lower the risks as well.
In general, traditional exchanges offer more cryptocurrency trading pairs to investors, and give more chance to the promising blockchain projects to get their tokens listed and traded in the platform.
OTC exchanges might be the easiest one among the three helping investors, especially the beginners get familiar with cryptocurrency investment. People can start buying cryptocurrency directly with their fiat currencies.
Cryptocurrency futures exchanges are going to be the future of exchange in the crypto market. The former two exchanges only allow investors to earn money when the market is up or call it the bull market. While futures exchanges enables investors to make profits even when the price of cryptocurrency fall or in the bear market. It also gives investors chance to make greater profits though they possess a small amount of assets. Certainly, higher profits with higher risks.
Now choose the kind of cryptocurrency exchange that meets your trading demand and start your journey to crypto world.
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