How does a crypto exchange work?

Crypto exchanges, as we have come to know, are powerful platforms that allow individuals to trade a wide range of digital currencies. In this chapter, we will take a closer look at how a general exchange works, or rather how the user should operate on it.

In addition to trading, exchanges enable users to buy and/or sell cryptocurrencies. In general, it works like this:

  1. The user creates an account with the exchange and completes all necessary verification procedures, such as providing identification and proof of address.
  2. Once his account is set up, the user can transfer funds to his account using various methods such as bank transfers, credit card payments or transfering other cryptocurrencies to it.
  3. With the balance in their account, the user can then buy and sell cryptocurrencies through the exchange’s trading platform. Values are usually displayed in the form of a chart, and the user can place orders to buy or sell at a specific price.
  4. When a user places an order to buy or sell a cryptocurrency, the exchange matches the order with another user who wants to buy or sell the same cryptocurrency.
  5. When a match is found (one wants to sell cryptocurrency at the price someone else wants to buy), the exchange executes the trade and the funds are transferred between the users’ accounts.
  1. The user can withdraw his funds from the exchange at any time by transferring them back to his bank account or personal crypto wallet.

Exchanges make their living by charging commissions for their services. These fees can be a percentage of the trade value or a fixed amount. Each crypto exchange has its own specific features and processes, so it’s always a good idea to familiarize yourself with all of it before using them.

Crypto exchanges are part of a digital asset ecosystem that offers individuals a convenient and secure way to buy, sell and trade digital currencies. However, before using them, it is important to understand their specific features and procedures to ensure a smooth and safe trading experience.