If you’ve purchased or traded cryptocurrencies before you’ve most likely had to have used an exchange of some kind. There are hundreds of exchanges around the world and new ones popping up every day all trying to make a profit and secondary to make it easier for you to get your hands on cryptocurrency.

You may have heard of popular exchanges like Binance that offers a range of trading options and access to the liquidity of a number of altcoins but there are many others also available.

Not all exchanges are created equal

There are various types of cryptocurrency exchanges available all servicing different needs or niches in the market as well as various geolocations that need onramps and offramps in their local fiat currency.

While I could go into detail on each of the various exchange types, this would drag on for longer than I’d like today’s lesson to be, so I’ll focus this post on two types of trading methods cryptocurrency exchanges offer, namely a spot exchange and a leveraged exchange.

Popular cryptocurrency exchanges

Image source: – blockonomi.com

A spot exchange

A spot exchange refers to the trading type the majority of investors would use when conducting trades. You would deposit funds by means of fiat or a base trading pair like Bitcoin or Ethereum, depending on the exchanges offering and from there you are able to trade your Bitcoin or Fiat, for example, USD for an altcoin.

You must have adequate balances in one currency to exchange for another. Once you find a price you are happy with, you’ll fill a buy order in the order book and this will match with another investor who is selling. You are therefore paying a spot price from the various sellers.

After executing a spot exchange between currencies the balances are available to be exchanged again or withdrawn to a wallet.

A leveraged exchange

A leveraged exchange refers to those that allow for margin trading. In the margin trading game, you do not need to “own” or have possession of the underlying asset to enter a contract. The exchange will provide the funding for you to trade against other assets, at a leverage ratio for example up to 5:1.

When margin trading you are only required to hold collateral currencies and are able to trade any of the margin pairs even if you do not hold the currency on that pair you want to trade. So for example, if I hold $1000 dollars on an exchange in USDT.

I can then go ahead and makeup to a $5000 trade-in a pair of my choice regardless if I own one of the assets the base pair or not, let’s stay theirs a decent arbitrage between ETH and EOS, I can place the trade with the leverage provided by the exchange and make a large % markup on the trade deal.

This is possible because when trading with leverage, exchanges provide the necessary funds for the entire value of a trade.

Pick the exchange for you

Some cryptocurrency exchanges are spot exchanges only, others focus only on leveraging or rather encourage it over basic trading and some offer both services in one exchange. If you want to do leveraged trades you can head over to popular margin trading exchanges like Bitmex or Kraken but be warned this game is not for the novice investor.

While your wins do pay off much larger, your losses can quickly stack up and paying for leveraged trades can hurt anyone’s pocket.

Written by @chekohler

Sources

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