Exchanges. How do they work

[Flocon de neige]

Hi everyone !

Total newb. here, I'm trying to understand the basics of the crypto world.
I get the philosophy, the benefits compared to fiat money, etc. but when I want some precise info, I cant find them.
Specifically, I can't understad how the exchange platforms works, for the buying part...

Do I have to deposit fiat money on my account on the exchange platform and then it's stored there and I can use that money to buy BTC whenever I want ?
Can I pay by a simple transfer from my bank account ? But any transfer takes at least a day, so when the transfer occurs, witch BTC/eur rate is applied ? (If I want to buy 1 BTC at 6800 euros, but 1 day later, when my bank transfer applies, the rate is now at 7800. Do I still get my 1 BTC or do I get less ?)

I find it difficult to find precise info on the exchange platform themselves. Every piece of information I find add more unanswered questions, so it always seem there is always more complex things going on, not explained.

For example I just watched a video on a platform explaning how to buy BTC. They just say : you set the amount of fiat money you want to pay, it shows you how much BTC you'll get (and the fee), you confirm and after a few minutes, you'll get the BTC. Please note the amount of BTC you'll receive may slightly vary."
Ok but then I need to understand why it may slightly vary, how much can it vary, etc.

Any idea what they are talking with slightly vary ?
Any good source of information on how the exchange works ?

[gentlemand]

You send your fiat to the exchange and park it in your account there before buying. How long it takes is entirely down to your bank and the exchange's system. They all have different set ups.

The only time the BTC/EUR rate applies is the moment when you actually buy BTC on the exchange. If you don't have EUR ready to spend in your exchange account then you can't buy anything.

'Slightly vary' sounds a bit weird to me. I would expect to receive exactly what I paid for minus fees. Which exchange published this video?

[Jeremy Franklin]

Any good source of information on how the exchange works ?

If you check these links, I am sure you will learn everything you need to know:

https://en.wikipedia.org/wiki/Cryptocurrency_exchange
https://www.ethos.io/what-are-cryptocurrency-exchanges/ (What are Cryptocurrency Exchanges?)
https://cryptocurrencyfacts.com/what-is-a-cryptocurrency-exchange/ (What is a Cryptocurrency Exchange?)
https://www.investopedia.com/tech/what-are-centralized-cryptocurrency-exchanges/ (What Are Centralized Cryptocurrency Exchanges?)

[Flocon de neige]

Thank you, kind Gentlemand

Do they all work like that ? They don't explain it clearly...
So people deposit their euros or dollars on the exchange and leave them there until they buy crypto ? doesn't that makes exchanges a kind of bank ?
Can you get back you fiat from the exchange to your bank account if you change your mind ?

'Slightly vary' sounds a bit weird to me. I would expect to receive exactly what I paid for minus fees. Which exchange published this video?

This one here :
https://youtu.be/4iGj_idMoZc?t=49

Also, the video doesn't care to mention you have to deposit fiat first

[NeuroticFish]

There are (at least) 2 types of exchanges where you can change fiat into crypto. I am not great with terms, so maybe the names I'll use are not correct, but the principle is.

1. The order based exchanges.
You deposit money, usually with bank transfer. When the transfer is done (may be days) your account is credited.
When the account is credited you can make buy order(s) and the exchange will match with other people's sell orders when the price is matching (to keep it simple). (So all happens at the prices from when the money has arrived, not the prices from when it was sent, obviously.)
When the match is done, you get the crypto minus the exchange fee (usually around 0.2% iirc).
The crypto you got is still in exchange's wallet. For a certain fee (they call it transaction fee, but usually it's bigger than the Bitcoin network transaction fee) you can withdraw your coins into your own wallet.
(!! Make sure you read about wallets and about keeping your funds safe !!)

2. The instant exchanges.
Here you usually pay with card, but not necessarily. They will handle all the tasks from [1] type exchange for you, will do this "instantly", but the exchange rate will be a bit worse than in [1] exchange (because they don't work for free, right?). They may also send the result to your own wallet.
If it's done with card their exchange rate depends on the current real exchange rate.
If it's done with bank transfer I don't know, they may have it written somewhere. Since they don't know how long will take until they're credited by the bank, I'd say that you should expect that a future exchange rate will be used.


The video talks about something close to [2], just you seem to have to deposit first.
After that they work with the money (and coins) in your account. The exchange rate is based on the "current" price, but as I said, they have extra fees for doing certain operations for you.

Edit: you can see at 0:42 that there's a certain available balance

[gentlemand]

Do they all work like that ? They don't explain it clearly...
So people deposit their euros or dollars on the exchange and leave them there until they buy crypto ? doesn't that makes exchanges a kind of bank ?
Can you get back you fiat from the exchange to your bank account if you change your mind ?

There are what most people would call exchanges and then there are what I'd call buying services which is what that video looks like.

An exchange hosts buys and sells between users. They provide the platform to trade but you're not buying or selling from the exchange, it's other people on there. The exchange handles the money coming in and out and the means to trade. The actual trading happens between their customers.

You can see here - https://poloniex.com/exchange#usdt_btc  the sell orders and buy orders. Those are different users constantly meeting in the middle.

With a buying service you're not waiting for another user to meet your price, the service sets the price and you pay it. That's where the slight variation might happen. Quite often markets move so fast that they can't achieve the price they're showing you but I wouldn't use a service like that that didn't guarantee what I was paying. That's their job. With a proper exchange that price is 100% live so that can't happen, if you don't meet the price the sale doesn't happen.

Another example of the difference is Coinbase vs Coinbase Pro. Coinbase is a buying service, Coinbase Pro is an exchange.

You should always be able to withdraw your fiat. Some places will have limits on how much based on your level of ID verification.

[LeGaulois]

So people deposit their euros or dollars on the exchange and leave them there until they buy crypto ? doesn't that makes exchanges a kind of bank ?

You could compare it with a payment processor like Paypal if you prefer, or with Amazon where you can deposit money to use it later.

Can you get back you fiat from the exchange to your bank account if you change your mind ?

And yes, of course, you can return the money to your bank account if you changed your mind.

This one here :
https://youtu.be/4iGj_idMoZc?t=49
Also, the video doesn't care to mention you have to deposit fiat first

It doesn't mention you have to deposit fiat because it's something logical. Like it doesn't mention you have to put your username and password to log in. But in the video, if you check carefully you can see that they show a link to make a deposit, and even choose a payment method (euros or debit card)

[Lhaine]

Do I have to deposit fiat money on my account on the exchange platform and then it's stored there and I can use that money to buy BTC whenever I want ?

Yes you can deposit and use that fiat money to buy crypto currency you like ,anytime you want. As long as the exchange accepting fiat deposit .

Can I pay by a simple transfer from my bank account ? But any transfer takes at least a day, so when the transfer occurs, witch BTC/eur rate is applied ? (If I want to buy 1 BTC at 6800 euros, but 1 day later, when my bank transfer applies, the rate is now at 7800. Do I still get my 1 BTC or do I get less ?)

Yes you can transfer via bank transfer as long as the exchange you choose accepting it.

The price of btc you bought will know the time when you filled the order ,so if the transfer takes a day and the price change  then you will only follow the price that day which is 7800 and you will recieve less.

I find it difficult to find precise info on the exchange platform themselves. Every piece of information I find add more unanswered questions, so it always seem there is always more complex things going on, not explained.

may i know what exchange platform you want to try to start trading so we can give you exact video tutorial on that exchange.

For example I just watched a video on a platform explaning how to buy BTC. They just say : you set the amount of fiat money you want to pay, it shows you how much BTC you'll get (and the fee), you confirm and after a few minutes, you'll get the BTC. Please note the amount of BTC you'll receive may slightly vary."
Ok but then I need to understand why it may slightly vary, how much can it vary, etc.

Any idea what they are talking with slightly vary ?
Any good source of information on how the exchange works ?

befor starting buying bitcoin you need to understand that price of crypto currency is too volatile . The price you bough today is different from what wil be the price of it after an hour or a day . You may lose or win in fiat value every time.

[joniboini]

Another way to learn how they work is to read the how-to guide for buying/selling cryptos on their platform. I suggest you read them (can compare them if you want to) so you get the gist of it. For example, https://binance.zendesk.com/hc/en-us/articles/360036928272. Some of them even have additional websites dedicated to tutorials, such as https://www.binance.vision/tutorials.

[Upgrade00]

I believe you've gotten answers to most of your questions, I'll just offer some general tips to help  you navigate through.

When dealing with exchanges I think it is pertinent to discuss about security as you are risking your funds.
• Only deal with top and reputable exchanges. Do not risk your fund in any shady or relatively new exchange. (Also do not sign up to untrusted exchanges as your personal data can be sold)
• Exchanges do not function as a bank or a wallet address, so do not store fiat or cryptocurrency in it. Only deposit either of them when you are ready to exchange.
• It's also important to use the bookmark option for exchanges you frequent to avoid getting into the wrong website.
I would also recommend you read the terms and conditions any website you plan on using (and know the legal status of your country on trading cryptocurrency), especially if you're depositing large amounts.

[Flocon de neige]

Thanks everyone for enlighten me !!

• Only deal with top and reputable exchanges. Do not risk your fund in any shady or relatively new exchange. (Also do not sign up to untrusted exchanges as your personal data can be sold)

Agreed ! Is there some obvious big exchange that everyone uses ?
(I see Binance pop up a lot in the forums)

• Exchanges do not function as a bank or a wallet address, so do not store fiat or cryptocurrency in it. Only deposit either of them when you are ready to exchange.

Why not ? (I don't doubt what you said, I just want to understand why)
Is it not recommanded to deposit in order to wait for the good opportunity, may it be 3 months later ?

I would also recommend you read the terms and conditions any website you plan on using (and know the legal status of your country on trading cryptocurrency), especially if you're depositing large amounts.

100% agreed !

befor starting buying bitcoin you need to understand that price of crypto currency is too volatile . The price you bough today is different from what wil be the price of it after an hour or a day . You may lose or win in fiat value every time.

Perfectly understood ! I'm not doing anything yet, just gathering info, but my general plan so far would be roughtly to buy when I see the rate is low, to sell when the rate is higher. for exemple a few days ago the rate was below 6.000 euros, now it's around 7.000. I would have buy then and sell now.
But for doing that I need the "buying order" to take effect immediatly, so I need some of my fiat to be available on the exchange already.
How do I achieve that? Maybe there is another way than the exchanges ?

I'm going to read a lot more guides and terms and conditions !

[gentlemand]

• Only deal with top and reputable exchanges. Do not risk your fund in any shady or relatively new exchange. (Also do not sign up to untrusted exchanges as your personal data can be sold)

Agreed ! Is there some obvious big exchange that everyone uses ?
(I see Binance pop up a lot in the forums)

• Exchanges do not function as a bank or a wallet address, so do not store fiat or cryptocurrency in it. Only deposit either of them when you are ready to exchange.

Why not ? (I don't doubt what you said, I just want to understand why)
Is it not recommanded to deposit in order to wait for the good opportunity, may it be 3 months later ?

Binance won't let you deposit fiat unless you use one of their subsidiary exchanges like Binance Jersey.

Other main ones for EUR are - Coinbase Pro, Kraken, Bitstamp. There are others out there but those are the main ones. If another one tempts you then look it up here and do plenty of research.

As for not leaving money on exchanges, they don't have a good track record for getting hacked and losing your funds. It's much less likely with a decent exchange but still possible.

Much more likely you will get hacked and your exchange account will be drained so start paying close attention to your online security practices. Exchanges won't cover you for that loss.

[Lhaine]

Thanks everyone for enlighten me !!



Perfectly understood ! I'm not doing anything yet, just gathering info, but my general plan so far would be roughtly to buy when I see the rate is low, to sell when the rate is higher. for exemple a few days ago the rate was below 6.000 euros, now it's around 7.000. I would have buy then and sell now.
But for doing that I need the "buying order" to take effect immediatly, so I need some of my fiat to be available on the exchange already.
How do I achieve that? Maybe there is another way than the exchanges ?

I'm going to read a lot more guides and terms and conditions !

if you already have idea what exchange you want to use then you can use to trade thier stable coin such as USDT in that case you dont need to deposit every time you want to buy and sell bitcoin.

For trading you can use usdt as alternative to fiat the value is the same USD.

Agreed ! Is there some obvious big exchange that everyone uses ?
(I see Binance pop up a lot in the forums)

binance is the one most use by traders here that's why this exchange will always be thier first suggested exchange for you.

[Sonu_titu]

Exchanges in a general term can be called as the liquidity providers. They are the platforms where buyer can find the sellers bet and vise versa.

To buy from fiat you can buy it instantly buy through your credit card. If find the credit card think can kill your time while buying at certain price then you can buy stable coins like USDT and exchange them later to the coin you deserve to have.

This vary thing due to time at bank transfer or credit card fund transfer can be cut off if your holding stable coins in advance. Stable coins are the coins who's price is same as USD but are crypto currencies thus can be held in crypto wallet can instantly be exchanged to any other crypto without bank or card intervention.

There are many exchanges that help buying Example: Binance, Simplex, Indacoin, Changelly, CoinSwitch etc., I usually buy at CoinSwitch as I feel they charge too less on buying thus sharing their guide. It is upto you where you want to buy and store funds:

You can refer this article to buy Coins using Credit Card on CoinSwitch -https://support.coinswitch.co/a/solutions/categories/35000132267/folders/35000216282?lang=en&view=all

You can use this link to buy using Credit Card -
https://coinswitch.co/app/exchange?from=usd&to=btc

Note: At any point of time please make sure that the funds are in your wallet and you are not sharing your private key with anyone.

[Nocrap]

Different exchanges has different ways on loading your funds. Like example in binance you can deposit eth,btc or even fiat via your wallet or credit cards. Then after sending funds on the exchange you can directly do your trading.

[Upgrade00]

Agreed ! Is there some obvious big exchange that everyone uses ?
(I see Binance pop up a lot in the forums)

Check out the ratings on CMC for too exchanges (by trade volume) https://coinmarketcap.com/rankings/exchanges/reported/
You can do more research and tweak your parameters to find the perfect exchange for you, i.e, if you're looking for more liquidity, anonymity or trade volume, you search accordingly.

Why not ? (I don't doubt what you said, I just want to understand why)
Is it not recommanded to deposit in order to wait for the good opportunity, may it be 3 months later ?

In centralized exchanges, you do not own the private keys to the wallet assigned to you, and this means it's not your wallet. If anything happens to the exchange; a hack or an exit scam your funds would be lost.

But for doing that I need the "buying order" to take effect immediatly, so I need some of my fiat to be available on the exchange already.

This is down to the ease of using the specific exchange. If it's relatively easy to assess, you can deposit fiat and convert while the price is still within your desired range. Personally, I would rather risk the price dropping a bit that leaving my funds in an exchange wallet.

Maybe there is another way than the exchanges ?

You can look up OTC trades ~ Over The Counter trades.

[Krislaw]

You can buy on an exchange like Luno with your Mastercard or Visa card depending on the country you're in because they don't offer their service in all countries. And then you can buy your BTC instantly with the rate offered by them.
Secondly, exchanges like Binance which allows you to set the order price/rate accepts fiat deposits too and you can deposit and make an order for yourself at any rate and wait for an order to match with yours.
Above all, make sure you enable maximum security on your exchange accounts to maximise the risk of getting hacked.

[Malvika_sitlani]

All exchanges have different setups. If you are buying through fiat the fee always varies from exchange to exchange. Before paying please ensure you are aware of the fees. If you are n't sure about the particular exchange then buy a small amount, if you are satisfied then go for a higher amount.

[tbct_mt2]

There are some help above, and I only contributed something I have, from my side. You have to consider some factors to choose an exchange you want to use but you better do some steps I wrote there, Newbies - Read before using exchanges or investing. Backing up, testing backups, and keep backups safely in vaults (something like that).

About the gate you can use to buy, trade on exchanges, not only with bitcoin but with cryptocurrency in general. It is the best for you if you have some sort of your capital in USDT, that is fastly transacted on network, and you can use USDT to buy bitcoin on many exchanges. You can also use USDT to buy altcoins, but only some of them have USDT pairs.

[bdbountyon]

Exchange is a platform to buy or sell crypto. There are many exchange already in the market. But which will be successful no one knows. You should be careful to invest in exchange, trade sites. I don't think we need more exchange. Many are failed project. Many have strict rules and regulations. They charge high fees for withdraw. Many exchange don't support promising cryptocurrencies pairs. Many are working hard to bring mobile app based exchange where people will purchase products and services with exchangeable local currency in a few seconds.