How does cryptocurrency exchange trading work?

What is the purpose of the exchange trading? The cooperation of the minor and secondary investors affects considerably the price… The rate movements of a particular cryptocurrency on the leading exchanges contribute to pretty the same movements on the smaller exchanges… Having bought cryptocurrency, you will be able to create a limit buy order in which you can indicate a selling price in advance…

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How does cryptocurrency exchange trading work?


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What is the nature of cryptocurrency trading?

Initially, the market participants exercise Bitcoin, or any other type of cryptocurrency trading, to get profit. Most often, they are trying to sell the previously bought cryptocurrencies at a higher price. Besides, in the case of the accurate foreseeing the market trend, it is possible to maximize the profit via the borrowing funds on the cryptocurrencies exchanges providing margin trading opportunities (Cryptocurrency margin trading: how it works). It is also possible to speculate the rate fall (borrow cryptocurrency of the exchange, trade it up and buy cheap, profiting from the loan redemption). In fact, cryptocurrencies trading suggests that the market participants join their forces to get profit through many ways, which means to stock up cryptocurrency at a cheaper price and trade it up.

If you want to accomplish the first task, which is to enter the market at a favorable rate, you need to know analyzing the news, figures, and glass ‘content’. As a result, you will be able to understand the overall market tendencies and successfully foresee the upcoming price development. The same is needed to sell the asset at the most favorable rate. It is crucial that you know determining the rate experiencing the price peaks. Along with that, a user needs to understand how trading works, how and why cryptocurrency rate changes both on the market, and on a specific cryptocurrency exchange selected by you. That is what we will further discuss today.


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What are the factors affecting the cryptocurrency trading development and results?

The major part of cryptocurrency trading can be easily attributed to the cryptocurrency exchanges. So, talking about the cryptocurrency prices movements, it is essential to consider their movements on the cryptocurrency exchanges primary.

What are the factors affecting the exchange prices for cryptocurrencies? These are the following:

1. The general rise in demand for Bitcoin or any other perspective cryptocurrency. A great number of minor and medium investors themselves can make the price go up through the increase in demand for it. In case, when the market players stimulate the price growth, it cannot but enhance the widespread concern about buying that cryptocurrency. As a result, the increase becomes even more rapid. The price movements following the large investors coming on the market also initiate the interest to cryptocurrency and its prices increase.

2. In the case with the market overbought (or disappointment with the potential of a particular cryptocurrency), the price goes down. Sometimes, it includes the panic assets ‘drops’ followed by their rate slump, making it even more appealing for purchase. The overbought and severe price decline of the assets are pretty ordinary consequences of the hasty growth and constitute the growth inevitable elements, as well. If we take a look at the Bitcoin rate in 2017 (Bitcoin rate in 2017), we will see that regardless of the unconditionally positive price trend, thus far the price rate has been moving ‘two steps forward, one step back’-based principle.

At the local level, within the medium-sized cryptocurrency exchanges, like EXMO, the price rate can be compared with one of the leading exchanges. The EXMO price rates can differ from the large exchanges’ price rates because of the time delays due to the market changes, and fiat (ordinary) money add/withdraw operations fees.

If the prices for specific cryptocurrencies shift severely on the large exchanges, it leads to the same price shifts on the smaller exchange platforms. In the mentioned cases, the experienced crypto-assets owners on EXMO, modify their orders according to the price movements. The arbitral traders playing the role of the ‘invisible market hand’ buy out those orders, which have not been modified according to the price movements on time. Having quickly transferred the cryptocurrencies, which have been bought at a favorable rate, to the other exchanges to sell them for the fiat money (seldom – for another cryptocurrency), these traders take their funds back to the primary exchange more or less profiting.

The minor shifts of the cryptocurrency rates on the leading crypto-exchanges impact poorly the trading processes within the EXMO platform or do not have any effects at all. In other words, if the market is still, the internal price factors will be more important for the EXMO trading climate. The moderate fluctuation rate during a day can be attributed to the local major players’ activity. These players ‘rock’ moderately the market within a mentioned exchange to profit when the activity is low (the market is still in general). If the short-term traders wish to profit from the additional volatility, they need to know profiting such fluctuations.

Apart from the vast majority of the short-, long-term and arbitral traders, the price movements on the exchange platforms are also modified by those, who exercise long-dated purchase just once, who are rather investors than traders. Additionally, those users, who buy a considerable amount of cryptocurrency aimed not for trading or investing but paying for specific services or funds transfer transit use can be added to that kind of the users mentioned above.


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How does cryptocurrency exchange trading work?

Generally, if the user wants to trade for the selected currency pair, he/she needs to buy cryptocurrency at the most appealing price among the already existing (a purchase is made at the ‘market’ price), or create a purchase order at a personally-selected price, if he/she believes that the current price is going to decrease in the nearest time (a user needs to use the limit buy orders to make a purchase at a personally-selected price).

Having bought cryptocurrency, you can create a limit buy order indicating a price, which you would like to sell cryptocurrency for, in it; you can also hold cryptocurrency on your exchange balance waiting for the favorable price to sell your cryptocurrency on the market. If you do not intend holding cryptocurrency on your exchange balance, you can withdraw it to your cryptocurrency wallet; however, for a non-professional user, it would be better and easier to store cryptocurrency on the exchange, not on wallet (if only the user does mind to activate his/her account two-factor maintenance).

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It is also important to mention margin trading. In this case, the cryptocurrency exchange:

a) can lend you some fiat money to increase a purchase limit of the cryptocurrency, which you are waiting the price increase from;

b) can lend you some cryptocurrency, which you are waiting the price decrease from, to sell it right now and buy later at a cheaper price.

Read more about margin lending (here). You can learn more about the work of the trading platform interface (here).

Additional materials that may help you:

How to protect account and personal data on EXMO?

Cryptocurrency trading - which currency pair is better to start from?

Cryptocurrency mining: key facts about “digital gold”

Security of cryptocurrency investments. Advices for beginners

What are the pros and cons of investing into cryptocurrency

Why do miners choose exchanges to exchange cryptocurrency for fiat funds


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Your respectfully, EXMO team

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