How does the exchange work? How the stock exchange works

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

All basic bitcoin wallets have one significant drawback - they only work with bitcoin and cannot convert it into dollars or another currency. As soon as the turnover of the cryptocurrency market and the price reached sky-high peaks, many exchanges began to appear offering currency exchange.

Cryptocurrency exchanges

On the platforms you can trade altcoins (alternatives to the classic bitcoin), you can convert them into fiat money (real money - dollars, euros, rubles, etc.), as well as buy or sell coins using electronic systems or bank accounts.

With all the advantages of bitcoin, its basic wallets have a significant drawback - they only allow you to work with it. Wallets are not capable of exchanging it for other digital currencies, converting it into dollars, rubles or any other currency.

How the exchange works

Like any information product, a cryptocurrency exchange consists of software and computer hardware.

How to work on the cryptocurrency exchange:

• Userregisters on the exchange website using its software.
• Creates an account where he either deposits his fiat and digital accounts, places buy and sell orders, or withdraws funds.

Some exchanges arrange chats, rate analytics or news feeds for their users.

The computer part is a server that stores data about all registered users and their transactions. All trading operations are also carried out here.

The hardware part is represented by servers on which operations are performed and data about users, their accounts, transactions carried out by them are stored. This is how the stock exchange works.

How to create an account and fund an account on the exchange

It is not difficult to register on the exchange and create an account. It is enough to enter any (even fictitious) name, create a password and specify the mail. If you want to hide your main email address, you can make a new one and specify it.

Some bitcoin exchanges introduce a system of levels for users. To move to the next one, you need to pass verification - that is, to confirm your identity and the accuracy of the information specified during registration.

When an account is verified, anonymity is lost, but a "verified" user is granted more rights on the exchange. For example, he gets the right to more trading operations or additional ways to withdraw and deposit money.

Usually accounts forcryptocurrency exchanges can be replenished either by transferring bitcoins or other similar currencies. The address or number of the wallet to which you want to transfer the currency is indicated by the exchange. After transferring cryptocurrency from your wallet to the number of the exchange wallet, the funds appear on the user's balance.

Another way to replenish your account on the exchange is to replenish it with ordinary money and then, already on the exchange itself, buy altcoins or bitcoins.

The options for replenishing accounts on each cryptocurrency exchange are different. This leads to the fact that users choose exactly those exchanges for work that offer conditions for depositing / withdrawing funds that are convenient for them.

Thus, the exchange is a platform where everyone can put up lots for the sale or purchase of cryptocurrency at a different price, even different from the market one. Therefore, the principle of exchange trading is that everyone chooses at what price to buy or sell.

What do exchanges earn and how do traders make money on exchanges

The sources of the main income of any trading platform are commissions for funds withdrawn by users and for each transaction made by a trader, that is, a person working on the exchange. Usually, a commission of about 2-3% is withheld for withdrawing money from an exchange account. For a single transaction, the commission is much less, a fraction of a percent, but since the total number of such transactions is very large, this suits the exchange.

For a trader, it is important to make money on the stock exchange, and their income is of little concern to them. Daily exchange rate fluctuations are more10%, currency rates often show high volatility, this is a chance to earn money for traders. On exchanges, you can play both on exchange rates and on the ratios of exchange rates for currency pairs, for example, bitcoin / ethereum and others. The wider the list of such options, the more profitable the exchange is for the trader.

Cryptocurrency exchange trading

Algorithm trading is quite simple:

• an order (lot) is placed for a certain amount and a rate that suits the trader for sale or purchase;
• the deal is concluded as soon as there is someone willing to support it on the specified conditions.

Roughly speaking, if the currency rises sharply in price, then it should be bought. If it falls, sell. In fact, everything is not so simple, and there are a lot of nuances, without taking into account which, it is very easy to lose the entire balance and go bankrupt. The main task when trading is to guess where the rate (trend) will go - up or down, and when exactly.

In order to earn solid money with a modest balance, most exchanges offer "leverage" to traders. This is an opportunity, making small bets, to qualify for a big win if you are lucky. However, in case of failure, there is a risk of losing everything at once.

There is another way to make money on stock exchanges - barge arbitrage. The meaning of such earnings is that, having several accounts on different exchanges, a trader monitors the rates and receives income by selling on one and buying on the other at the most favorable rates.

The largest cryptocurrency exchanges

Some exchanges only work withresidents of certain countries. Most provide their sites to everyone, but not all are trustworthy, because they either do not withdraw funds or deceive traders in other ways. However, there are some of the most reliable exchanges that have managed to establish themselves as one of the best:

• Poloniex is the largest US-based exchange with 66 cryptocurrencies and 90 trading pairs. An important drawback for Russian-speaking users is the completely English language on the site and the fact that fiat money cannot be entered into the exchange. First, you will have to buy bitcoins in an exchange service or on another exchange, and then you can trade on Poloniex. Accordingly, there is no withdrawal to real money either, and you need to exchange or sell on another exchange.
• Bitfinex is the next most traded exchange after Poloniex. It offers a smaller number of trading pairs, but provides the ability to withdraw and deposit funds in the form of dollars. True, there is a limitation in how the exchange works - the need for verification. The trading platform service will require a passport photo, a phone number, and you will have to prove that the address indicated during registration is real and the trader really lives there. A document confirming this can be a fresh receipt of payment for utilities. For those who do not care about anonymity, the exchange is quite suitable. On this site, in addition to trading, there is an opportunity to act as a broker or engage in margin trading.
• Localbitcoins is one of the largest exchanges with Russianan interface where it is possible to sell or buy currency using a variety of electronic payment systems, or by bank transfer. Also, if you wish, you can make a deal with someone who lives nearby in order to purchase bitcoins for cash.

• EXMO is an exchange that has a Russian-language version, which makes it possible not only to trade lots, but also to exchange cryptocurrency directly in your wallet in your personal account. Euro, dollar, hryvnia and ruble are available on the exchange, as well as payment systems Payeer, Yandex, Advcash, Qiwi and many others. The platform is suitable for most traders, both experienced and beginners. One of the few exchanges that work with the ruble.
• Yobit is a large exchange that provides the opportunity to trade both crypto/fiat pairs and between different virtual currencies. The site has a Russian-language interface and many ways to replenish the balance, including the Qiwi payment system. In addition, you can regularly receive free coins on the exchange.
• Binance is one of the largest Chinese exchanges based in Hong Kong. The world leader in cryptocurrency trading volume. It is characterized by fast deposit/withdrawal of funds.
• Kucoin - has been operating since 2017 and has already entered the top list of such exchanges in terms of the volume of cryptocurrency trading in Asia. Many currencies and modest fees.
• Bter is a very popular exchange in China. About thirty trading pairs. The commission is 0.2 percent from transactions.
• Tradingview - domestic exchange with great functionality.
• Bitstamp - this exchangeallows you to change bitcoin only to US dollars and vice versa. Low transaction fees.
• BTC-e - most likely it is the most famous and already loved by many traders precisely for the way the exchange works. Verification is optional, and in order to start trading, it is enough to provide a postal address. Bitcoin can be exchanged for fiats - rubles, euros and dollars.

What happens to the money earned when the exchange goes bankrupt

Although the exchange indicates after registration the address for replenishing the account, it is important to understand that since the site administrators also have private keys, theoretically, its owners can, if they wish, dispose of the funds of traders at their own discretion. That is, when transferring bitcoins or fiat money to the exchange, it should be borne in mind that they do not fully belong to the account owner.

In the event of an exchange closure or an attack by hackers or law enforcement intervention, it is almost impossible to return your funds. The fate of users' funds depends entirely on the cause of the incident and the decency of the owners of the trading platform.

For example, in such cases, the Mt. Gox exchange, from where the cryptocurrency was stolen by hackers, could not return anything, while BTC-e promised traders to return their funds, which were temporarily blocked by the FBI.

Since the owners of the exchanges do not publish information about themselves anywhere, it is almost impossible to find them, and servers and domains are usually registered to nominees or firms.

Shouldn't trade large stocksamount of money, in any case, while there is no firm confidence in the seriousness of the project. And after the lapse of time, no one can guarantee that the exchange will not close one day, and all the money will not disappear, since the exchange works only as long as its owners want it.

Some traders use exchanges to store funds, like a wallet. This is not reasonable, the risk is too great, and it is better to keep as much money on the trading floors as it is decided to allocate for trading.

Basics of trading on a cryptocurrency exchange

Bitcoin has a very high volatility, since even small discussions of it in the media instantly lead to an increase in the price of this coin on the exchanges. After the unrest around bitcoin fades, the price decreases.

Naturally, after the price falls, speculators immediately become active and try to buy it at a low price. As soon as the price rises, they sell the currency.

Compared to trading on a regular exchange, cryptocurrency trading has a number of advantages:

1. Bitcoin is considered a relatively independent currency because it is not tied to any country, as the exchange operates mainly on resources that are almost never identified. At the same time, the course of cryptocurrencies is influenced by events taking place in world politics and economics. So, for example, when Greece takes out a new loan, the local currency depreciates, and bitcoin will definitely change course as well. The crisis that occurred in 2013 significantly affected the value of bitcoin. It was then in Cyprus that they introduced strict control over all bank accounts. That's whyexperienced traders at some important world events immediately pay attention to a cryptocurrency that is not controlled by anyone, rightly expecting fluctuations in its rate.
2. Bitcoin trading takes place 24/7. They are not tied to the time of day or to a particular course. Almost Bitcoin is an ideal environment for cryptocurrency arbitrage.
3. The price of bitcoin is changing at an amazing rate, and the higher the volatility of the trading instrument, the better the conditions for profiting from trading.

Principles of trading on a cryptocurrency exchange

Before you start working on the stock exchange, you need to learn the basics of regular trading and learn how to correctly determine when it is more profitable to sell and buy cryptocurrency. To do this, each exchange provides its own set of tools, there are many strategies and tactics.

Principles of cryptocurrency trading:

• orders (lots) of sale and purchase;
• rate charts;
• history of deals made;
• trading volumes.

Charts help determine whether the trend is moving up or down. There are different schedules for a period of time. Daily charts show trend changes per day, hourly charts per hour, minute charts per minute, and so on.

• Lots or orders are traders' requests to buy or sell cryptocurrency.
• History reflects the transactions that were made on the exchange, and with which instruments were made.
• Volumes help to judge whichthe cryptocurrency mass has changed hands over a certain period of time.

When choosing an exchange to start trading, especially if you want to learn how to trade, you should pay attention to their characteristics:

• location;
• what exchanges work with cryptocurrency;
• asset liquidity;
• commission amount;
• trust and regulation.

Cryptocurrency exchanges are divided into two types:

1. Those on which bitcoin and its forks are allowed to be exchanged for fiat currencies.
2. Those on which they can only be exchanged for cryptocurrency.

Earn on the stock exchange is a popular strategy

One of the most popular strategies for making money on cryptocurrency exchanges is the BTER strategy. Properly using it, you can double your funds in two months. Another plus is that neither brokers nor other intermediaries will receive a commission - only the exchange.

If you carefully and consistently apply this strategy, then you can work on any bitcoin exchange, the main thing is to follow the instructions:

• On the exchange, in the "Markets" section, the bitcoin market is selected, and this is how the currency pair for trading is determined. When choosing, you should pay attention to the volume of all already placed lots (orders) and the price - it should not be high for a particular pair, and the volume is better than 0.8-1 bitcoin, but you can trade within these price limits.
• The 15- and 30-minute charts of the selected pair are analyzed. If there is a downward trend in prices, then such a pair is suitable. Nuance:the price drop should be no more than 15 percent of the cost, otherwise such a drop indicates a loss of interest in the currency pair, and it is better not to work on it.
• The Buy order is filled, the rate of interest to the trader is corrected or the market rate is left. At the same time, it is not worth trading on the stock exchange with amounts exceeding half of the balance. Next, a sell order is placed for an amount not exceeding 5 percent of the purchase.

If you manage to correctly analyze currency pairs and carry out about twenty such operations, then within a month you can earn about 100 percent of the profit. However, in practice, it is very difficult to implement 20 successful transactions out of twenty, so losses are almost inevitable, and any trader needs to be ready for them. You need to clearly understand all the possible risks before working on the cryptocurrency exchange.

That is why it is strongly discouraged to risk more than half of your capital by trading on the stock exchange.

If the balance went negative

There are situations when a trader bought a currency, but it continues to fall in price. The question arises as to what to do next…

The first thing NOT to do is to sell for less than what you bought for. We'll have to wait until the price rises again. Sometimes this may not happen soon and you can wait a long time. But if you overcome your desire and do not go into a big minus, then there will be a chance to stay with a profit. Trading is not difficult, it is much more difficult to understand how to work on the stock exchange correctly, how to constantly follow the tradingdiscipline, cultivate endurance and willpower. Then trading will begin to bring both profit and pleasure.