Centralized – Forex Academy

Introduction

The cryptocurrency exchange is a place that allows trading cryptocurrencies through a trading platform. These are platforms where people can exchange one cryptocurrency for another one, and even for fiat currencies, for that matter. Their operation is very similar to a traditional financial exchange. The cryptocurrency exchange’s primary operation is to allow the buying and selling of digital assets as well as other assets (fiat currencies). Note that digital cryptocurrency (DCE) is another reference to a cryptocurrency exchange. These exchanges can be like a stock exchange or a currency exchange.

Cryptocurrency Exchange Explained

As mentioned, these exchanges are similar to traditional financial exchanges. To clearly understand this, we may bring out the differences between the crypto exchanges and the conventional exchanges. I a cryptocurrency exchange, buyers, and sellers trade based on the current market price of the cryptocurrencies. Here, exchanges play the role of the middleman. Just like on the stock market, there is some fee charged on each transaction.

Some exchanges deal only with cryptocurrencies, while others that deals with the exchange of both cryptocurrencies and fiat currencies. For example, in these exchanges, you can trade the US dollar for Bitcoin.

Cryptocurrencies are typically unstable in terms of value and sourcing. For instance, cryptos like Bitcoin have been under major dispute events where the value of Bitcoin changed dramatically in a very short time, or incidents where the major exchanges went down due to thefts and frauds.

Talking about the most popular and reliable exchanges, Coinbase’s GDAX (AKA Coinbase Pro) is an example of that. Also, there are exchanges run by third parties where there is a middleman, and decentralized exchanges that mimic traditional exchanges like IDEX. In decentralized systems, trading is based on smart contracts and is not powered by a centralized third party system for the most of it. Trading with centralized exchanges will require a lot of information to be produced. However, they do allow the trading of fiat currencies. DEX exchanges, one the other hand, require lesser information but they do not allow exchanging of fiat currencies.

Classification of Cryptocurrency exchanges

Based on the exchange’s organizational hierarchy and overall controlling bodies, we can classify them as Centralized Exchanges and Decentralized Exchanges.

The Working Of A Centralized Cryptocurrency Exchange

Since these exchanges are centralized, they are run by a third-party or other organizations. More like a bank for exchanging fiat currencies. Here, the middleman takes control over whatever the assets are being traded on the network.

The Working Of A Decentralized Cryptocurrency Exchange

A decentralized exchange (DAX) is a cryptocurrency exchange which operates without the existence of a third party, or a central authority. In simple terms, decentralized exchanges allow peer-to-peer trading of cryptocurrencies. However, there have been signs that these exchanges have been suffering from low trading volumes and market volatility. And to solve this issue, protocols like 0X, Stellar, and Bitshares are being implemented.

Top Cryptocurrency Exchanges

There are several crypto exchanges to from, but not all have the features and technicalities. Below are the exchanges we have listed out by considering factors like user-friendliness, accessibility, security, and fees.

Coinbase
Kraken
Poloniex
Bitstamp
Coinmama
Bitsquare
Binance
Bitbuy.ca

These exchanges and many more are discussed in other articles, and you may find them here. So watch out this space for more great crypto content.

Introduction

The Stock market and the Forex market are the most widely traded markets in the world. Many traders who enter the universe of trading are often in a dilemma on which market to trade on. Though both markets involve trading instruments, there are many differences between these two. In this lesson, we shall get insights on the different features of both markets and then come to a conclusion on which is the market has got the upper hand.

Market timings

The forex market is open for 24/5. This proves to be a considerable advantage, as traders can trade anytime during the trading hours according to their schedule. While this is not the case with the stock market because they’re open only for 7-9 hours in a day. So, the stock market timings can be helpful only to full-time traders.

Facility to buy and sell short

As already discussed in the previous lesson, there is no directional bias in the forex market. The process and working for buying and selling is the same. Hence, a trader can participate during any condition of the market. In the case of the stock market, there are few restrictions on short selling a stock. Though the facility for short selling is available, the procedure is not as simple as buying a stock.

Leverage/Margin

Leverage is the facility provided by the brokers to take larger positions with smaller capital. Leverage is one of the reasons why small retail traders take part in the market. Now, comparing the leverage in the stock market with the forex market, the difference is quite significant. In the stock market, maximum leverage for a day trader is up to 4:1 and for a positional trader, it is up to 2:1. Coming to the forex market, the leverage is commonly around 100:1. In fact, in some brokerages, it goes up to 500:1 as well. However, it cannot be concluded that it is better to choose the forex market over the stock market. This is because, as the leverage increases, the risk involved in the trade also increases.

Dividends

Dividends are basically perks given by companies if an investor invests in their company. Investing in a stock that provides dividends to their customers can be considered as a risk-free business. This is because, even if the stock underperforms in the market, you are usually assured of dividend income. But, in the forex market, there is no concept of dividends as such. Hence, this market is for the ones who are willing to take the risk.

Diversification

Many traders look for diversifying their portfolio. In the US stock market, there are around 2,800 stocks listed on the NYSE and 3,100 on the NASDAQ. And these stocks are put into different sectors. The sectors have their specific features and perform differently from other sectors. Hence, the stock market is an ideal market for the ones looking to diversify their investments.

Conclusion

In considerations of the above features of the stock market and the forex market, it is quite hard to stay biased. In the initial features, the forex market proves to be a better market, and when it comes to dividends and diversification, the stock market is the clear winner. Hence, from this, we can conclude, ‘the best market’ is a variable factor. It all depends on the type of trader a person is.

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