Overview of the Different Types of Cryptocurrency Exchanges

4 min readSep 3, 2021

A cryptocurrency exchange is required if someone wishes to purchase or sell cryptocurrencies. These online services are comparable to stockbrokers as they allow you to purchase and sell digital currencies such as bitcoin, ethereum, and dogecoin. With minimal fees and robust security features, the top crypto exchanges make it simple to purchase and sell the currencies you desire.

In the crypto economy, exchanges are the most active and significant service category, accounting for 90 percent of the total of all value transmitted through services. They come in several forms and sizes to satisfy the demands of a wide range of consumers, whether they’re a teenager buying their first crypto or a long-time trader.

It’s crucial to consider supported currencies, price, withdrawal choices, and security when choosing the best crypto exchange for your requirements, which is what we did while compiling our list of the best cryptocurrency exchange.

There are five major categories that you should be aware of. Each has its own set of benefits and drawbacks, so read carefully to gain the most useful information.

Retail exchange (Retailer)

Retail exchanges are the most common form of exchange, catering to everyone from experienced traders to first-time Bitcoin buyers. That means usability and quickness are two of the most important ways companies set themselves apart.

To make transactions as simple as possible, retail exchanges usually offer user-friendly interfaces. They’re also usually custodial, which means they store users’ private keys for them so they don’t have to dig them out and enter them every time they do a transaction. While this increases convenience, it also increases the danger of consumers losing their funds if the exchange is hacked, especially if the exchange is not insured.

Retailers operate in a variety of ways. Some exclusively do fiat-to-crypto swaps, while others only do crypto-to-crypto trading. The possibilities are virtually endless; it all relies on the provider. Coin base and Kraken are two of the most well-known exchanges of this type.

Peer to peer (P2P)

A crypto marketplace is a term used to describe this possibility. Peer-to-peer exchanges provide a link between two different merchants. For the website’s services, a specified percentage or a predetermined fee is usually paid per deal.

Peer-to-peer exchanges merely connect buyers and sellers and do not take the opposite side of a transaction. Local bitcoins is the most well-known example, which matches a buyer with many vendors and then allows the customer to choose the best price among the options.

These exchanges are frequently employed as mediators to ensure that neither party is defrauded. However, because you will be working with actual people, it is conceivable to come into contact with a fraudster. Trustworthy providers, such as Paxful, would often restrict such individuals and do everything possible to prevent them from enrolling on their websites.

Decentralized exchange (DEX)

This kind was only recently discovered on the internet. It’s a non-custodial exchange that doesn’t handle any of your money. Instead, to offer wallet-to-wallet trade, the business employs special networks and related software to automatically transmit money.

Because the exchange never really keeps the assets, this provides users more privacy and eliminates the chance of their assets being taken in the case of a breach.

These exchanges are so decentralized that if you make a mistake, such as transferring funds to the wrong address, the exchange has no recourse to aid you.

Derivatives exchanges

Dealing using derivatives is for expert cryptocurrency users since it necessitates a higher level of investment understanding, such as the capacity to short a coin. With spot trading, you can only gamble on the value rising.

Users can also make highly leveraged investments on these exchanges, allowing for more upside. Investors, on the other hand, face a larger risk because they may lose more than they put in. Because of the heightened risk, these sorts of exchanges are subject to more regulatory monitoring.

Instant Exchange

This is another type of non-custodial exchange but it works somewhat differently. To begin with, this version is one of the simplest to use. They also provide a wider range of currencies than shops and transactions are completed instantly. They usually support a broader range of currencies than retail exchanges and convert funds instantly. Users only need to input the transaction they wish to make, and the order will be filled right away.

These exchangers get their bitcoins from a variety of custodial, retail exchanges and function as a layered service on top of them. Instant exchangers provide customers with access to numerous different exchanges’ trading pairs through a single central facility.

Summary

If you’d like to start trading or investing in cryptocurrencies, it’s critical to select the appropriate exchange for your needs. There is a decent choice for you whether you want the most currencies, the lowest fees, or the easiest experience. A user must have a funded account before purchasing his first coin.