Cryptocurrency exchange is an online service where you can buy or sell crypto and fiat currencies. There are plenty of cryptocurrency exchanges so, the first thing that you need to do is to choose one and sometimes undergo a lengthy and tedious registration process.
There are few important aspects that you should consider before the registration. At the beginning, you should consider which assets you are going to buy. A huge amount of cryptocurrencies are circulating and new ones are emerging nearly every day. Some exchanges focus only on few renowned digital coins whereas others try to trade with many cryptocurrencies and are keen on supporting newly risen ones shortly after their origin.
The most important aspect is the reputation of an exchange. The best approach is to google the information on the internet just to make sure whether a particular exchange is trustful. Users often have and keep a certain amount of cryptocurrencies deposited in exchanges in order to facilitate daily trading. It is unpleasant when an exchange becomes unavailable, the user's interface response is slow or the users can‘t transfer digital coins to private wallets.
Another significant aspect the user should consider are fees for depositing, trading, and withdrawal. Fees can differ from exchange to exchange and a user should ensure that he or she understands the payment conditions of the exchange. Information about fees is available on an exchange website and is often displayed during trading or withdrawal.
Note that some exchanges must limit access to some features due to national restrictions. A user should ensure that all required exchange features are available for his or her country.
Once a user has selected an exchange, he or she must undergo a registration process. Some exchanges require submitting personal ID, some latest bills and even a photo with the user holding some piece of paper where a date and the name of the exchange is written. This is mostly the case in the US and UK exchanges. It is worth to mention that the registration process might take a few days or even weeks. On the other hand, some exchanges are fine with anonymous registration.
Before the first deposit of fiat or digital currency to an exchange, the user should consider the security and set up a 2-factor authentication if the exchange supports it. Exchanges have wallets for fiat and all digital currencies with which they trade. It works like a common cryptocurrency wallet. The user deposits the cryptocurrency to an exchange wallet address and inserts their own wallet address to make a withdrawal. Some exchanges allow you to deposit fiat money via bank transfers. However, it is often a long and an expensive process so, it is easier to buy BTC through some online service and let it transfer to the user‘s BTC wallet address at the exchange.
An exchange is a place where sellers and buyers meet and trade cryptocurrencies based on the current market price. The seller offers a certain amount of cryptocurrency for some price. Buyers see offers of all sellers and pick which one they want to buy. And with that the buyers become holders of digital coins. The exchange takes care of transferring the digital coins from the sellers to the buyers wallet upon finishing the trade.
First of all, a user must select a pair of digital coins which they want to trade. For example, when the user has BTC coins and they want to buy NEO coins then the BTC/NEO pair must be selected. The same pair is selected when the user wants to sell NEO coins to get BTC coins.
Not all possible pairs are supported by exchanges. The first item of the pair is usually BTC or ETH. The second item is every other coin supported by a particular exchange. Once a user selects a pair, an exchange displays an image where there is a so-called candle graph with a current price (in most cases in BTC). Besides the graph, there are other informations and tables. Let's have a look at the most important ones that are for trading.
Usually, there are two columns on exchanging so-called order books. The first one is a bid column and it contains all the bids of the buyers. The topmost bid is the one which offers the highest price per unit. Sellers struggle to sell for the highest price so they pick the bids that are on the top.
The second one is an ask column and it contains all asks of sellers. The topmost ask is the one which offers the lowest price per unit. Buyers struggle to buy for the lowest price so they pick the asks which are on the top.
During trading, users can see all their open orders. An order can be canceled in order to try to set a better price.
Stock market is not a wallet. Once you send your coins to the stock market, its provider becomes the owner of your coins. That´s why you should choose your stock market wisely and use only the trustworthy ones. It is strongly recommended to have your coins on the stock market only when necessary for a short time and not leave them there for a long time. Even if you trust the provider, there is always the risk of losing your coins due to stock market´s technical vulnerability.
Some of the famous exchanges are Bittrex, Coinbase, Poloniex, Bitstamp, and Kraken.
Other trading options
So far I‘ve described traditional cryptocurrency exchanges. There is also another option on how to trade with digital coins. It is a direct trading exchange. This kind of exchange offers direct peer-to-peer trading between buyers and sellers. Sellers set the price and the exchange might take some fee for the service. The advantage is that the registration process is much simpler and the digital coins are transferred from and to user wallets and thus cannot be stored in the exchange wallet.