Cryptocurrency is becoming more and more popular. People see cryptocurrency as a way to make money in the short-term and as a long-term investment vehicle. According to SoFi Learn, an expert in cryptocurrency, “It’s important to note that cryptocurrency is volatile and comes with risks.”
There is a lot of confusion about cryptocurrency. If you ever wondered how crypto exchanges work, this article should teach you exactly what it is.
What Are Crypto Exchanges?
A crypto exchange is a place where you can exchange a fiat currency for a cryptocurrency and a place where you can exchange one cryptocurrency for another. A crypto exchange allows for the buying and selling of cryptocurrencies.
The crypto exchange will set the rate of the currency, be it coins or tokens. There are several factors that can affect the price of cryptocurrency. For example, market demand and supply are major factors. Take Bitcoin, for example. It does not have a physical equivalent in the real world. They only sell it on exchanges.
A primary principle of economics is that a currency will rise in value if people buy it, and the price will fall if people sell it. Bitcoin and other cryptocurrencies follow the same rule of economics. For example, because so many people were purchasing Bitcoin in 2013, the price skyrocketed.
Another factor affecting the price you will pay for cryptocurrency is mass media. Recently, the world saw the tremendous power social media has in influencing the price, buying, and selling of stocks. Similar things are being seen in the world of cryptocurrency. When major influencers promote a cryptocurrency or they purchase an enormous amount of cryptocurrency, the price of it skyrockets. The flip side is also true. Once cryptocurrency reaches a particular value, retail investors sell, causing the price of cryptocurrency to plummet.
How Do Crypto Exchanges Work?
When cryptocurrency was a brand-new thing, the only ways to get cryptocurrency where to mine it or have someone else give it to you directly. People wanted a safer, quicker way to get cryptocurrency. This led to the creation and proliferation of cryptocurrency exchanges.
A currency only has value if people have a way to exchange it. This is true with fiat currencies, like the US dollar, the euro, and the British pound. It also holds true for cryptocurrency.
Cryptocurrency is complex. Therefore, it requires a special platform for trading. A digital currency exchange is a platform that lets clients trade cryptocurrencies for other products, resources, cryptocurrencies, or standard fiat currencies.
Crypto exchanges have their own futures and options. Some are designed for investors looking to hold onto the currency for the long haul. Others are designed for traders who want to make quick cryptocurrency exchanges.
According to SoFi Learn, “A straightforward way to think about cryptocurrency exchanges is to imagine the stock market.” The difference is that on crypto exchanges, traders are focused on cryptocurrency pairs while trying to make a profit from the volatile nature of currencies. Stock exchanges work during business hours, whereas cryptocurrency exchanges function 24 hours a day.
There are several cryptocurrency exchanges available. You should find the one that works well for your goals and personal choices. This will allow you to trade cryptocurrency with greater confidence.
