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A bitcoin exchange is an electronic market where traders can buy and sell bitcoins using different fiat currencies or altcoins. A bitcoin currency exchange is an online platform that serves as an intermediary between buyers and sellers of the cryptocurrency.
Bitcoin exchange platforms match buyers with sellers. Just like a traditional stock exchange, traders can choose to purchase and market bitcoin by inputting either a market order or a limit order. When a market order is selected, the trader will be authorizing the exchange to trade his coins for the best available price in the online market.
As an instance, on a bitcoin exchange, three coin sellers are asking for BTC/USD 2265.75, BTC/USD 2269.55, and BTC/USD 2270.00. A trader who initiates a market order to buy bitcoins are going to have his order filled at the best ask price of $2265.75. If only five bitcoins are available for the best request and 10 coins are offered for $2269.55, and the trader wants to purchase 10 at market, his order will be filled up with 5 coins @ $2265.75 and the remaining 5 @ $2269.55. .
However, a trader who thinks he can buy bitcoins for a better price could set a limit order for, say, $2260.10. If a vendor matches his/her request price with this purchase or puts a price below this figure, the buyer will get filled.
Online bitcoin marketplaces usually designate bitcoin participants as either makers or takers. When a purchaser or seller places a limit order, the exchange places adds it to its order book until the price is matched by another trader on the other end of this transaction. When the cost is matched, the buyer or seller who set the limit price is known as a manufacturer.
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All of bitcoin exchanges have transaction fees that are applied to every completed purchase and sell order carried out within the exchange. The commission rate is dependent on the quantity of bitcoin transactions that's conducted. For instance, bitcoin exchange Poloniex has its speed ranging from 0 to $ 0.25%, GDAX prices range from 0 to 0.30%, Krakens prices range from 0 to 0.36 percent, and Paxful costs 1 percent of the amount of a sale to the vendor but official statement buyers don't get charged. .
To transact in bitcoin on an exchange, a user must register with the exchange and go through a series of verification processes to authenticate their identity. Once the authentication is successful, an account is opened for the user who then has to transfer funds into the account prior to s/he can purchase coins.
A dealer who'd like to draw money from his or her account could do so using the options provided by his exchange which could include a bank transfer, PayPal transfer, check mailing, money delivery, bank card, or credit card transfer. .
Making deposits and withdrawals come at a cost, depending on the payment method chosen to transfer funds. The greater the chance of a chargeback from a payment medium, the higher the fee. Making a bank draft or wiring money to the exchange includes a lesser chance of a chargeback in contrast to funding your account with PayPal or a credit/debit card at which the funds being transferred can be reversed and returned to the user upon his/her petition to the bank. .
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In addition to transaction fees and funds transfer charges, traders may also be subject to currency conversion fees, depending on the currencies that are accepted by the bitcoin exchange. In case a user transfers Canadian dollars to an exchange that only deals view it in US dollars, the bank or the exchange will convert the CAD to USD for a fee.
Foreign exchange spreads are important steps when transacting in bitcoin and vary depending on how liquid the bitcoin exchange is. For example, on May 31, 2017, the best bitcoin bidding and ask on Kraken, a bitcoin exchange system, was XBT/USD 2,314.07 and XBT/USD 2,317.75, respectively. Another online exchange, GDAX, had its best bid and ask time for the same time window as BTC/USD 2314.99 and BTC/USD 2319.00.
(Note that the Bitcoin ticker is either XBT or BTC( depending on the exchange). .
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Note that a bitcoin exchange is different from a bitcoin wallet. While the former offers a stage by which bitcoin buyers and sellers can transact with each other, the latter is simply a digital storage service for bitcoin holders to store their coins securely. To be more technical, bitcoin pockets store personal keys that are utilized to authorize transactions and get the bitcoin address of a user.
Real exchanges, like MtGox or even Bitstamp, are actually just a medium between dealers. People can place limit orders to buy / sell bitcoins for a certain price. The exchange will match buyers and sellers when conditions of the purchaser and the seller are met.