There are several types such as Trading Platforms, Brokers, CFD and Peer-to-Peer.
Acting as a mediator, trading platforms provide an environment that connects a buyer and a seller securely. In return for providing the service, the trading platforms take a cut in the form of a small fee. With this model the need for both parties to be present at the same time is eliminated, thus making the process seamless while the funds are stored securely.
Brokers work in almost the same way as trading platforms, with one main difference – the broker itself is both the buyer and the seller. The buy and sell orders are filled on the pretext of a predetermined price provided by the broker. These types of platforms usually boost a much more user-friendly environment making the buying and selling a smoother and simpler experience.
These types of platforms are NOT recommended for newbies as the products offered here are highly speculative in nature and can lead to a full loss of the user’s capital. Platforms that offer CFDs (Contract for Difference) are the most lucrative type of exchanges as they offer leverage where you don’t directly trade an asset. You buy into a contract of difference which may have scalable leverage of up to 100x or even more in some cases. You bet (short or long) on where the price will go in the near future. The CFDs borrow you money when you open a position.
The risk comes when you trade with leverage and is highly dependant on your position size and what level of leverage you‘re using. If you use high leverage the risk is higher as the liquidation price will be much closer to the opening price. Chances of losing capital due to mismanagement of leverage are high. Not using stop loss can lead you to loss of capital, especially in a such volatile market.
One of the most famous ways to buy Bitcoin and other cryptocurrency is peer to peer, where there is no middle man involved in the transaction. P2P platforms only connect the two parties and providе the needed security when a trade is executed. This type of buying and selling holds a higher risk, especially if a user chooses to buy or sell directly in-person with another user. This method is highly used in problematic countries like Venezuela, Zimbabwe, Argentina, etc… where people have limitations due to sanctions or imposed limits from internal or external entities.
Generally, you should look for any major controversies surrounding the said exchange or trading platform.
In case if there are any user complaints of accounts being frozen without any prior notice or withdrawals being halted that should immediately raise suspicion.
A lot of seemingly well-respected bitcoin exchanges act questionably when it comes to user accounts and funds. Conducting basic research on reputation hardly reflects the actual intents of a service provider as it’s easily forged to appear legitimate.
A good part of the companies are known to either hire or have in-house PR teams whose job is to suppress negativity in case anything major breaks out. They also deploy other groups with the task of producing negative content for their competitors.
With a large amount of money being traded on the exchanges, the security of user funds is of utter importance. The prominent platforms are implementing different systems for verification and authorization of deposits & withdrawals such as email confirmations, 2FA authorization, in some cases KYC and secondary passwords.
Without the appropriate level of security, exchanges bear a very high risk as there are illicit minded people looking to exploit even the slightest mistake.
With more people joining the crypto industry, high-security practices will become even more important. In the near future, a regulation under a Financial Regulator such as FCA, SEC, CySEC, etc…, may become a desirable or even a mandatory aspect for showing that a crypto service provider is legit and upholds to the highest security practices.
In case a platform has experienced a breach, we should look at how they’re acting in response to it.
Hacks are happening almost all the time in the crypto industry. The dominant providers experience breaches very rarely, and the trustworthy ones usually reimburse the affected users.
Bulletproof security doesn’t exist, however, very high-security practices mixed with legitimate companies who can take care of their customers do.
CFD, Brokers and trading platforms each have different features as they are aiming for different target audiences.
Trading platforms and CFD exchanges offer advanced order types compared to the simple types of direct buy and sell offered by brokers.
Even though we are still in the nascent days of the crypto industry, you can already find a wide variety of offerings compared to a few years ago.
Fees build up over time and can lead to a significant impact on your overall performance.
Depending on the type of platform, there are different fee structures. Usually, the service providers have a standard that they stick to, but in some cases, you may pay fees much higher than normal.
Brokers for direct buying and selling have high fees, with CFD exchanges offering lower fees. There are brokers who have utility tokens, further lowering the trading fees. Such brokers can be found here.
Bitcoin exchanges provide the user with an environment, where he can trade cryptocurrencies with other clients on the same platform.
1. The client deposits funds in a supported currency.
2. The client can place a trading order, which will be either matched with an opposing order of another user at the market price or will be filled by other users with time, depending on the liquidity of the pair being traded.
3. The client can withdraw the money at any point in time.
When buying and selling through exchanges, there’s no risk of capital loss due to other users evading to fulfill their part of the deal (compared to OTC purchases where such risk exists), since the exchange acts as a mediator between both parties, unless the service provider itself doesn’t commit fraud against its users.
The most common ways bitcoin exchanges make money is through
– Maker fees
– Taker fees
– Withdrawal fees
– Market spread
Usually, bitcoin exchanges generate income through the trading activity of their users.
In most cases making a deposit has no fees attached to it, however, withdrawals are met with a steep fee in some places.
When buying or selling the user pays a small fee for the trading environment and order matching.
There is no definite answer to which exchange is the best as each and every legitimate one excels in a different category. Some provide an excellent set of features with high-security practices, while others exceed in fast order execution and lower fees.
Every user should do their own research based on his needs and what type of trading he’s interested in.
There are different reasons for people to invest in Bitcoin. Some people are speculating that it will go much higher in value, while others invest in it because they believe in its fundamentals.
People investing in bitcoin, usually do it as a mean of diversification to their portfolio of investments. Blockchain altogether is quite an interesting concept that proves itself as a needed invention when it comes to scaling transaction speeds, costs all the way to logistics and immovability in real-life applications.
Most of the people who invest in bitcoin and cryptocurrencies are from generation z, which is raised around computers and electronics and to whom Bitcoin makes perfect sense as a means to transfer value.
The third group of people is the one that gets involved because it needs to. In places like Venezuela, Argentina, etc… people invest to escape from hyper-inflation and bad monetary policies.