Key Features of a Cryptocurrency Exchange You Should Know

Posted by BenMilo on January 30th, 2020

‘Currency’ and ‘exchange’ will always coexist. This coexistence can not only be attributed to global travel and the need for foreign currency but also forex trading. The volatility and the fluctuation in the currency value makes it a nice and profitable platform to generate profit from these uncertainties. It is quite evident that volatility increases the relevance of an exchange. If fiat currencies, with so much certainty, can make interesting cases for exchanges, it only makes better sense to have a cryptocurrency exchange.
 
Cryptocurrency exchanges, as the name implies, help trade between different cryptocurrencies. They also present interesting avenues for reaping profits. A robust cryptocurrency exchange should be able to accept multiple crypto coins and should facilitate faster transactions through real-time value calculation. In addition to that, there are a few unique features that any cryptocurrency exchange should have. We will discuss these features in detail in the below paragraphs.
 
Margin Trading:
 
Margin trading simply means that you can trade by using funds that are not entirely your own. You can avail of the funds provided by third parties to expand the scope of your investments. In the classical world of trading, it helps traders get access to a huge volume of funds. These funds are provided by the broker. This enhances the volume of trading and the possibilities of liquidity.
 
Margin trading is governed by a distinct set of rules and regulations that define leverage rates. The leverage rates differ from exchange to exchange, and in most cases, for the cryptocurrency market, it ranges from 2:1 to 100:1. In mainstream trading terminology, the margin is represented as a multiplier, commonly like 2X, 5X or 50 X.
 
One of the greatest advantages of cryptocurrency trading is the increase in the possibility of a larger profit. It makes it extremely easy for traders to open positions quickly without placing a lot of their own money at stake. However, the possibility of losses cannot be completely discounted. It is a high-risk trading method and it becomes all the more relevant in a volatile market like a cryptocurrency exchange.
 
It is greatly suggested that amateurs do not resort to margin trading. Hedging and risk management might seem handy for amateurs. However, with the degree of uncertainty, margin trading is surely not recommended. Once you have mastered analyzing charts and identifying trends, it makes it relatively less risky to involve yourself in margin trading. A deep and meticulous understanding of technical analysis and extensive experience in spot trading is required if you have to master margin trading in the cryptocurrency world.
 
Derivatives:
 
People who dread the world of calculus and mathematics might be quite familiar with this term. It simply implies that the value of a quantity does not have a standalone connotation but rather derives its value from another underlying quantity. In the world of securities, a derivative is a financial contract between parties that derives its value from an underlying asset. All the concepts of derivatives that work in the traditional financial world apply to the crypto world as well.
  • Swaps - It represents an arrangement between two parties to exchange a series of cash flows in the future. The exchange is usually based on instruments that bear a promise of interest. They can include bonds, loans or notes.
  • Futures - In this financial contract, the buyer has an obligation to purchase an asset at a fixed price. The same can also apply to the seller who agrees to sell an asset at a predetermined price in the future.
  • Options - Options are quite similar to futures but without the element of obligation. It means that the buyer or the seller has the right to purchase or sell an asset at a predetermined price at a fixed point in the future.
Derivatives protect the investor from volatility and fluctuations. These financial contracts can also be used to protect their investment portfolio.
 
The cryptocurrency derivatives market is quite nascent and there are only a few derivatives products that are available in the market. The most common of crypto derivatives are the bitcoin futures and options. It is not a thing of surprise as bitcoin amounts to more than 50% of the entire cryptocurrency market cap.
 
Copy-trading:
 
In the world of traditional finance, social trading is quite common. Traders share their trade strategy and price predictions on an online platform where other traders who might not have the expertise take those strategies and use it to get their profit. However, in copy-trading, the entire process is automated. The part where exports share their strategies remains the same. However, instead of the newbie traders picking those strategies and executing the trade by themselves, the process is automated.
 
A user can link a portion of their funds to a trader’s account that they consider reliable. Therefore, in essence, the strategy of the expert trader is literally being copied to the funds of the user. To make this possible, the users need to have access to the complete history and the strategy of the expert traders.
 
This comes in handy in a market like cryptocurrencies, which is still in its infancy. It is noted that only 1% of the users on a cryptocurrency exchange are engaged in active trading. The rest 99% have stopped with just opening their accounts. The lack of activity can be attributed to the proportional lack of trading skills. Bringing in copy trading in cryptocurrency exchanges will only ensure that the volume of trading increases, contributing to the liquidity of the exchange.
 
Conclusion:
 
The success of any exchange depends on the volume of trade and liquidity. It becomes all the more relevant when it comes to a volatile as it like cryptocurrency. Adding these features to a cryptocurrency exchange enhances the possibility of success.
 
Should you have the lofty desire to create your own cryptocurrency exchange, you can get in touch with our expert development team. Our team, experienced in blockchain and all the associated manifestations of the new technology, will help you create your own cryptocurrency exchange. We will ensure that your exchange is compliant with the local laws and the best practices.

BenMilo

About the Author

BenMilo
Joined: January 27th, 2020
Articles Posted: 5

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