Whether you are new to the world of cryptocurrencies or a seasoned user, it is certain that you are aware that there are primarily two methods to trade cryptocurrencies: via a broker or through a cryptocurrency exchange. However, even for those who are well-versed in the blockchain space, the distinctions between these two choices may not be entirely clear. Read more
CRYPTOCURRENCY EXCHANGE
A cryptocurrency exchange is a meeting point for buyers and sellers of cryptocurrencies as well as traditional currencies, such as dollars. As a middleman, the exchange charges a fee to facilitate the deal.
Two well-known uses for cryptocurrency exchanges come to mind, i.e., buying and selling. Buying cryptocurrencies for fiat money and exchanging them for other cryptocurrencies, such as exchanging your Bitcoin for Ethereum.
Different trading pairs are available on different exchanges, therefore it’s up to the trader to decide which one to use. Let’s assume an investor deposits USD on an exchange, as an example. Before he can trade other cryptocurrencies, he can only employ USD-related pairings like USD/BTC or USD/ETH.
To trade crypto, the most convenient method is to utilize a cryptocurrency exchange. This method is particularly handy when dealing with smaller sums of money. However, these are further classified into centralized cryptocurrency exchanges and decentralized cryptocurrency exchanges.
Types of Crypto Exchanges
Centralized cryptocurrency exchanges serve as intermediaries between buyers and sellers, facilitating the transfer of value between the two parties. In contrast to decentralized exchanges, centralized exchanges are more trustworthy. Nearly all cryptocurrency transactions are routed via a single, centralized exchange.
With a decentralized cryptocurrency exchange (DEX), users may conduct peer-to-peer transactions directly amongst one another, without the need for a middleman. Some users choose decentralized exchanges over centralized exchanges because of some of the challenges they face. The trade of fiat money for cryptocurrencies is not possible on decentralized exchanges.
BROKERS
When it comes to the interaction that exists between traders and the market, a broker acts as a kind of middleman.
To put it more simply, an individual who uses a broker for trading makes a deposit of money (or crypto) into the broker’s account, and after that, the individual is given the opportunity to utilize the numerous products that the broker provides. A trader is not required to trade the crypto or fiat money that he or she has deposited, but they are allowed to employ a different trading pair. The broker is responsible for locating a suitable counterparty for the transaction. In some circumstances, the broker may also act as a counterparty and carry out the deal.
Let’s consider an example for deeper understanding. The customer makes a deposit in bitcoin. However, they are interested in using leverage trading on the Ethereum/XRP pair. Therefore, he can trade the selected trading pair for the number of bitcoins that he has placed. For him to participate in this deal on the cryptocurrency exchange, he will first need enough Ethereum to be converted from his bitcoin holdings.
The Crux of the Matter
When it comes to the subject of whether one should use a cryptocurrency exchange or a cryptocurrency broker, there is not a single response that can be categorically stated as the correct one. To put it another way, each one of them caters to a certain kind of consumer, and the one that is most suited for every particular transaction is decided by the usage that it is meant for.
If a considerable amount of money was going to be traded, it would be in everyone’s best interest to use the services of a broker. Even if a customer’s broker is hacked, for example, the broker is regulated, audited, and the customer’s money is stored in the broker’s bank accounts.
This is the case even if the broker is the one who was hacked. The customer is entitled for compensation given the circumstances of this case. It is possible for them to take advantage of the extra resources that experienced traders have access to, such as technical analysis and automated trading strategies.
Customers who are engaged in short-term or medium-term margin trading with the intention of benefiting from fluctuations in the price of cryptocurrencies may also find that the services offered by brokers are suitable for their needs.
On the other side, cryptocurrency exchanges are willing to assume a larger risk to have the opportunity for bigger potential rewards. This is since even if they could have a higher cost, they provide several various trading pairings, including some up-and-coming altcoins that generate a very high profit owing to the volatility of the market. This is the reason for the increased popularity of these exchanges.
Exchange services are important for consumers who need to physically invest in cryptocurrencies (that is, directly possess assets) just as much as they are important for customers who wish to keep lengthy holdings of cryptocurrencies.
Each of the possible solutions will be beneficial to a different person in a different way. Always keep in mind that you are dealing with money that you have worked very hard to achieve. Because of this, it is in your best interest to give great attention to the choice of where to spend your money and to try to perform further study wherever feasible.
