All basic Bitcoin wallets have one significant drawback - they only work with Bitcoin and cannot convert it to dollars or other currencies. As soon as the cryptocurrency market turnover and price reached sky-high peaks, many exchanges offering currency exchange began to appear.
Cryptocurrency exchanges
At the sites you can trade altcoins (alternatives to classic bitcoin), you can convert them into fiat money (real money - dollars, euros, rubles, etc.), and also buy or sell coins using electronic systems or bank accounts.
With all the advantages of Bitcoin, its basic wallets have a significant drawback - they allow you to work only with it. Exchange it to other digital currencies, convert to dollars, rubles or some other currency wallets are not capable of.
How is the exchange
Like any information product, a cryptocurrency exchange consists of software and computer equipment.
How to work on the cryptocurrency exchange:
- The user is registered on the exchange website using its software.
- It creates an account on which it either replenishes its fiat and digital accounts, issues orders for sale and purchase, or withdraws funds.
Some exchanges arrange chats, course analytics, or news feeds for their users.
The computer part is a server where data is stored about all registered users and their trading transactions. All trading operations are also held here.
The hardware is represented by servers on which operations are performed and data is stored about users, their accounts, transactions conducted by them. This is the principle of the stock exchange.
How to create an account and fund your account on the exchange
To register on the exchange and create an account is not difficult. It is enough to enter any (even a fictitious) name, create a password and specify the mail. If you want to hide your main mailing address - you can make a new one and specify it.
Some bitcoin exchanges introduce a level system for users. To go to the next one you need to undergo verification - that is, confirm your identity and the accuracy of the information specified during registration.
When verifying the account, anonymity is lost, but the "verified" user is given more rights on the exchange. For example, he gets the right to more trading operations or additional ways of withdrawing and depositing money.
Typically, accounts on cryptocurrency exchanges can be replenished either by transferring bitcoins or other similar currencies. The address or wallet number to which the currency is to be transferred is indicated by the exchange. After transferring cryptocurrency from your wallet to the exchange wallet number, funds appear on the user's balance.
Another way to replenish an account on the exchange is to replenish it with ordinary money and then, already on the exchange itself, buy altoins or bitcoins.
The options for replenishing accounts on each cryptocurrency exchange are different. This leads to the fact that users choose exactly those exchanges that offer convenient conditions for depositing / withdrawing funds.
Thus, the exchange is a platform on which anyone can put up lots for sale or purchase of cryptocurrency at a different price, even different from the market. Therefore, the principle of exchange trading - 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 deducted for withdrawing money from a stock account. For a single transaction, the commission is much less than a fraction of a percent, but since the total number of such transactions is very large, this suits the exchange.
It is important for a trader to make money on the exchange himself, and their incomes do not bother them much. Daily fluctuations in the rate are more than 10%, exchange rates often show high volatility, this is a chance to earn for traders. On exchanges, you can play both at exchange rates and at the ratio of exchange rates of currency pairs, for example, Bitcoin / Ethereum and others. The wider the list of such options, the more profitable the exchange for the trader.
Cryptocurrency exchange trading
Trading by the algorithm is quite simple:
- an order (lot) is placed for a certain amount and rate that suits the trader for sale or purchase;
- the transaction is concluded immediately, as soon as there is someone who wants to support it on the specified conditions.
Roughly speaking, if a currency rises sharply in price, then you need to buy it. If it falls, sell it. In fact, everything is not so simple, and there are a lot of nuances, without considering which, it is very easy to lose the entire balance and go bankrupt. The main task when trading is to guess where the course (trend) will go - up or down, and when.
So that with a modest balance you can earn solid money, most exchanges offer traders a "leverage". This is an opportunity, making small bets, to claim in case of luck for a big win. However, in case of failure there is a risk of losing everything at once.
There is another way to earn money on exchanges - barge arbitration. The meaning of such earnings is that, having several accounts on different exchanges, the trader monitors the courses and receives income by selling on one and buying on the other at the most favorable rates.
The largest cryptocurrency exchanges
Some exchanges work only with residents of certain countries. Most provide their sites to everyone, but not everyone deserves trust, because either they do not withdraw funds or they deceive traders in other ways. Nevertheless, there are some of the most reliable exchanges that have managed to establish themselves as one of the best:
- Poloniex is the largest exchange located in the USA, 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 you cannot enter fiat money on the exchange. First you have to buy bitcoins in an exchange service or on another exchange, and then you can trade on Poloniex. Accordingly, there is no real money withdrawal either, and you need to exchange or sell it on another exchange.
- Bitfinex is the next largest trading exchange following Poloniex. It offers fewer trading pairs, but it provides the ability to withdraw and deposit funds in the form of dollars. True, there is a limitation on how the exchange works - the need for verification. The trading platform service will require a photograph of the passport, a phone number, and you will have to prove that the address provided during registration is real and the trader really lives on it. A document confirming this may be a fresh receipt of payment for utility bills. For those who do not care about anonymity, the exchange is quite suitable. On this platform, in addition to trading, there is the opportunity to act as a broker or engage in margin trading.
- Localbitcoins is one of the largest exchanges with a Russian interface, where it is possible to sell or buy currency using a variety of electronic payment systems, or bank transfer. In addition, 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 in 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 working with the ruble.
- Yobit is a large exchange that provides the ability 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 leader of the world 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. A lot of currencies and modest commissions.
- Bter is a very popular exchange in China. About thirty trading pairs. The commission is 0.2 percent of transactions.
- Tradingview is a domestic exchange with great functionality.
- Bitstamp - this exchange allows you to change bitcoin only to American dollars and in the opposite direction. Low commission for transactions.
- BTC-e is most likely the most famous and already loved by many traders precisely for the way the exchange works. Verification is optional, and to start bidding, it is enough to specify the mailing address. Bitcoin can be exchanged for fiats - rubles, euros and dollars.
What happens to the money earned during the bankruptcy of the exchange
Although the exchange indicates the address to replenish the account after registration, it is important to understand that since the site administrators also have private keys, theoretically its owners can, if they wish, use the funds of traders at their discretion. That is, when transferring bitcoins or fiat money to the exchange, it should be borne in mind that they do not belong entirely to the account holder.
In the event of the closure of the exchange or attack by hackers, or the intervention of law enforcement agencies, it is almost impossible to return their funds. The fate of the users ’money 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, where the hackers stole the cryptocurrency, could not return anything, while BTC-e promised traders to return their funds, which the FBI temporarily blocked.
Since the owners of exchanges do not publish information about themselves anywhere, it is almost impossible to find them, and servers and domains are usually registered with dummies or companies.
Large sums of money should not be added to exchanges, 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 exclusively while 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 trading floors as it is decided to allocate for trading.
Cryptocurrency Trading Basics
Bitcoin has a very high volatility, since even a small discussion of it in the media instantly entails an increase in the price of this coin on the exchanges. After the fading of unrest around Bitcoin, the price drops.
Naturally, after the price reduction, speculators immediately activate 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 several advantages:
- Bitcoin is considered a relatively independent currency, because it is not tied to any country, since the exchange works mainly on resources that are almost never identified. At the same time, events taking place in world politics and economics influence the cryptocurrency rate. So, for example, when Greece takes a new loan, the local currency depreciates, and Bitcoin will definitely change course too. The crisis that happened in 2013 significantly affected the cost of bitcoin. It was then in Cyprus that they introduced tight control over all bank accounts. Therefore, experienced traders at some important world events immediately pay attention to the cryptocurrency, which is not controlled by anyone, rightly expecting its exchange rate to fluctuate.
- Bitcoin trading occurs around the clock and seven days a week. They are not tied to the time of day or to a specific course. In fact, bitcoin is an ideal medium for cryptocurrency arbitrage.
- The price of bitcoin is changing at an amazing rate, and the higher the volatility of a trading instrument, the better the conditions for profit from trading.
Cryptocurrency Trading Principles
Before you start working on the exchange, you need to learn the basics of conventional trading and learn how to correctly determine at what point it is more profitable to sell and at which cryptocurrency to buy. For this, each exchange provides its own set of tools, there are many strategies and tactics.
The principles of cryptocurrency trading:
- orders (lots) of sale and purchase;
- course schedules;
- history of transactions;
- trading volumes.
Charts help determine whether a trend is moving up or down. There are different graphs over a period of time. Daytime shows trend changes that occurred during the day, hourly - per hour, minute - per minute, and so on.
- Lots or orders are the requests of traders to buy or sell cryptocurrency.
- History reflects the transactions that were concluded on the exchange, and with which particular instruments were made.
- Volumes help to judge which cryptocurrency mass has changed its owner for 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 these characteristics:
- location;
- Which exchanges work with cryptocurrency;
- asset liquidity;
- amount of commission;
- trust and regulation.
Cryptocurrency exchanges are divided into two types:
- Those on which bitcoins and its forks are allowed to be exchanged for fiat currencies.
- Those on which they can only be exchanged for cryptocurrency.
Earnings on the stock exchange - a popular strategy
One of the most popular strategies for earning on cryptocurrency exchanges is the BTER strategy. Properly applying it, you can double your money in two months. The 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 so 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 chart of the selected pair is analyzed. If there is a downward trend, then such a pair is suitable. Nuance: the price drop should be no more than 15 percent of the value, otherwise such a drop indicates a loss of interest in the currency pair, and it is better not to work on it.
- A Buy order is filled, the trader of interest to the trader is adjusted, or the market is left. At the same time, trading on the exchange is not worth amounts exceeding half the balance sheet. Next, a sales order is placed in the amount of not more than 5 percent of the purchase.
If you can correctly analyze the currency pairs and conduct 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 prepared for them. You need to clearly understand all the possible risks before working on a cryptocurrency exchange.
That is why it is strongly discouraged to risk more than half of their capital trading on the exchange.
If the balance is negative
There are situations when a trader bought a currency, and it continues to fall in price. The question is what to do next ...
The first thing you DO NOT have to do is sell for a price lower than the price you bought for. You have to wait until the price jumps again. Sometimes this may not happen soon and you can wait a long time. But if you overcome your desire and not go into a big minus, you will have a chance to stay profitable. Trading is not difficult, it is much more difficult to understand how to work properly on the exchange, how to constantly observe trading discipline, to cultivate endurance and willpower. Then trade will start to bring both profit and pleasure.