Sooner or later, every cryptocurrency enthusiast wants to move onto a professional exchange. At first sight, they can look intimidating, but once you get used to them they become as easy as riding a bike. Nevertheless, for anybody who has never traded stocks before there is still a learning curve. Hopefully, after this, you will have the confidence to check one out and maybe even buy or sell an asset!
What Is an Exchange?
Cryptocurrency exchanges are essentially huge marketplaces where you can buy and sell many different coins and tokens. These are slightly different from services like Coinbase because you buy from and sell to other investors rather than with a website/app. They also tend to offer dozens (sometimes hundreds) more coins than Coinbase ever could. Exchanges track the prices of each currency and update it automatically in the form of a chart. These are an essential tool for predicting market volatility, future prices, and other trends in the industry.
Here is a one hour chart for the coin Nano (once called Raiblocks). A full analysis of charts is beyond the scope of this discussion, but for the most part, you can ignore them unless you plan on day-trading (buying and selling numerous coins every day to make a living).
Some exchanges allow you to use fiat money (legal tender such as US dollars, euros, pounds, etc.) to buy coins, but the majority of exchanges are crypto-only. This means that they only allow you to trade with cryptocurrencies and do not use fiat at all. As of right now, crypto-only exchanges tend to offer more variety, but that is soon to change.
Signing up to an Exchange
With most crypto-only exchanges, you can sign up and start using them on the same day. Usually, all you usually need to sign up is an email address. You will also want to have some form of security authentication program such as Google Authenticator or Authy on hand. While not every exchange requires the use of one, it would be negligent to not do so. Services like this offer an additional level of protection beyond that of a simple password and can prevent you from getting hacked or falling for malicious attacks.
Binance, the most popular crypto-only exchange, does not require any identification for withdrawing small amounts of money, but it does for withdrawals beyond the equivalent of two bitcoins. This means that you can use the exchange pseudonymously (without it fully being tied to your identity) for small-scale trades, but if you wanted to withdraw much larger funds, you would be forced to hand over some documentation to get verified.
Cryptocurrency exchanges often expect documents like a passport, driver’s license, or ID card. Some also ask for recent bank statements indicating your place of residence. For many exchanges, it can take days or weeks to get fully verified, so if you think you are going to be handling large quantities of money, it is best to sign up and get verified beforehand.
Fiat exchanges like Kraken, Gemini, and Bitfinex are slightly different. You often need to send documentation over before you can start trading. Their verification times are also long.
Every exchange has a handful of cryptocurrencies that you can trade between. For instance, Binance allows you to trade most of its currencies between bitcoin, ether, Binance Coin (their own proprietary token), and Tether. These specific coins are called trading pairs. This essentially means that you can use one of these trading pairs to buy and sell other cryptocurrencies between them. The best way to understand this is with an example.
Here is a screenshot from Binance. Every set of coins in this list is paired to ether (ETH). This means that you can buy any of these coins with ether, or you can sell any of them for ether. Let’s look at the PIVX/ETH pair, in particular. What this tells us is that you can use ether to buy PIVX coins, or you can sell PIVX coins in exchange for ether. Of course, you can also use ether to buy all the other coins on this list, but you cannot use PIVX to buy other coins because it is only paired with ETH. Typically trading pairs are on the right side. Fiat exchanges have trading pairs too. Kraken has the fiat currencies EUR and USD both as trading pairs, the same principle applies.
Understanding Market Prices
One of the most perplexing topics for any cryptocurrency beginner to understand is that there is no set price for any cryptocurrency. Coinbase may tell you one bitcoin is worth $11,349.97, but Kraken may say $11,390.30, while Gemini may say it’s equal to $11,383.57.
Why are they not all the same price? The worth of every cryptocurrency is determined by the price that people buy and sell it at, and because every exchange has different customers/traders it means that the prices can never be exactly the same. One trader may buy one bitcoin at $11,380.00 on Kraken, but another may buy it at $11,390.00 on Gemini. Each market has a different value for the same coin. This is called a market price.
The same works for crypto-only exchanges. Binance may say 1 Enjin (ENJ) is 0.000271 ETH, but Kucoin may say one Enjin is 0.000266 ETH. Some day-traders like to shop around and choose the exchange which gives them the best value for money at the time, but that is generally not necessary. Often, the price of a coin is largely similar on most exchanges.
A Word on Scammers, Hackers, and Fraudulent Activity
While not an issue directly related to exchanges, it is worth mentioning that the cryptocurrency market is full of fraudulent behavior. The latest, and sadly most lucrative, scam in the industry is to link people to a fraudulent website which looks like a familiar exchange.
Someone may send you a link to ‘Kụcoin.com’ rather than ‘Kucoin.com.’ Did you notice the difference?
At first glance, it looks like the correct link but there is a serious problem: look at the ‘u’ on the first link, it has an underdot. It does not link to the same place. This is a particularly disgusting trick because, if the web address was underlined, then the dot gets obscured. You need to be extra vigilant when going to exchanges because this type of scam is popular right now.
Sometimes, these scam sites even make it to the top of a Google search through Adwords. The best things to do are save the link to the exchange you want to use and set up something like Google Authenticator as it prevents fraudsters taking your money.
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Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.