Exchange

Beginner

An exchange is an organized marketplace in which financial instruments – such as cryptocurrencies, commodities, and securities – are traded. An exchange may operate on a real-world facility or on a digital platform. Many traditional exchanges, which were initially restricted to physical trading, are now providing digitized services as a way to enable electronic trading (also known as paperless trading).

One of the main functions of an exchange is to provide liquidity within a secure and organized trading environment, acting as an intermediary for traders to easily buy and sell their assets while being less susceptible to financial risks.

Exchanges may be classified according to the type of trade being executed. Classical exchanges are the ones that perform spot trades (immediate settlement). On the other hand, there are exchanges that provide derivatives trading, such as futures and options. Exchanges may also be classified according to the financial instruments being traded: cryptocurrency exchange, stock or securities exchange, commodities exchange, and the foreign exchange market (Forex). But, many exchanges provide a variety of services and trading options. For instance, many commodities exchanges are also offering futures trading.

Within stock exchanges, the most important one in a given country is called the primary exchange. A few examples of primary exchanges include the New York Stock Exchange, the Tokyo Stock Exchange, and the London Stock Exchange. Most stock exchanges present a strict listing criterion, which ensures that only companies that meet certain requirements are effectively listed.

In the context of cryptocurrencies, digital exchanges are responsible for providing a platform where users can trade one cryptocurrency for another or buy and sell their coins for fiat money. Currently, most cryptocurrency exchanges are based on a centralized system, maintained by a private company that acts as an intermediary and is responsible for conducting all trades and transactions. Ease of use and liquidity are the major advantages of centralized exchanges. In regards to disadvantages, these centralized systems are susceptible to downtimes and cyber attacks, making security a major point of concern. Considering that users need to trust their holdings to the company in order to be able to trade, it is important to choose an exchange that has proven to be reliable and secure. 

In contrast, decentralized cryptocurrency exchanges (also known as DEX) were created as an alternative for centralized exchanges. DEX platforms remove the need for a middleman and perform trades and transactions within a trustless automatized environment (based on smart contracts). Despite the fact that these trading platforms are less susceptible to cyber attacks and infrastructure downtimes, decentralized exchanges are not able to provide fiat currency services, such as fiat/crypto tradings or fiat withdrawals/deposits. In addition, the trading volume tends to be much lower on these types of exchanges, since they are less popular than centralized ones and have limited functionality.

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A decentralized, digitized ledger that records transaction information about a cryptocurrency in a chronolo...

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A digital currency that is secured by cryptography to work as a medium of exchange within a peer-to-peer (P...

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Money that a government has declared to be legal tender.

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A cryptocurrency that is alternative to Bitcoin. Used to describe cryptocurrencies that are not Bitcoin.

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A framework consisting of legal and regulatory procedures to minimize and curb the flow of funds that are g...

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Buying and selling of assets over different markets in order to take advantage of differing prices on the s...

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The lowest price a seller is willing to accept on their sell order when trading an asset on an exchange.

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Refers to the holding of assets on behalf of a client. Can also refer to the ownership of one's funds or as...

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An exchange which does not require users to deposit funds to start trading and does not hold the funds for ...

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Launched by Binance after an initial coin offering that ended on July 3rd, 2017. Used for receiving exchang...

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A standard procedure in the finance industry which allows companies to identify their customers and comply ...

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You become a “maker” when you place an order and it does not trade immediately, so your order stays in the ...

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The interface where interactions between humans and machines occur. It establishes how a user can interact ...

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When a trader's leveraged position is forcibly closed as a result of it not fulfilling the necessary margin...

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Used to send and receive cryptocurrencies. Different types include software wallets, hardware wallets, and ...

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A fundraising method designed to reduce the risk for token purchasers by introducing a trusted intermediary...

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The 'taker' is someone who decides to place an order that is instantly matched with an existing order on th...

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The trading 'symbol' or shortened name (typically in capital letters) that refer to a coin on a trading pla...

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Trading using borrowed funds - note: this is a high risk strategy and should only be done by experienced i...

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When a taker picks the best available bid or ask for a cryptocurrency, taking the price and quantity availa...

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A conditional order to buy or sell a large amount of assets in smaller predetermined quantities in order to...

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A currency where the price is designed to remain the same as a designated asset. For example: 1 USDT is peg...

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