Introduction to Cryptocurrency Trading

A cryptocurrency exchange is an internet-based platform designed to allow users to buy, sell, and trade cryptocurrencies like Bitcoin and Ethereum, or other types of cryptocurrencies and fiat currency.

This guide covers some of the most important topics pertaining to cryptocurrency exchanges, including:

Common features of a cryptocurrency exchange

Know-your-customer and anti-money-laundering procedures

Funding your account

Assets and trading

Safety and security

The difference between a centralized and decentralized exchange

Licensed and regulated cryptocurrency exchanges

…and much more!

Common Cryptocurrency Exchange Features

Most cryptocurrency exchanges have similar basic features, as well as a set of advanced features that helps each individual cryptocurrency exchange stay competitive.

Every cryptocurrency exchange must feature an account system for deposits and withdrawals, with a wallet that can be funded by sending an amount of cryptocurrency or fiat currency to the wallet. Once the wallet has been funded, assets can be then traded or exchanged for another type of asset.

Many cryptocurrency exchanges require identification verification documentation typically referred to as “know-your-customer" (KYC) procedures. This process ensures cryptocurrency exchanges comply with global anti-money-laundering laws (AML). Some exchanges require the KYC process to be completed before any trading can begin, however, other cryptocurrency exchanges feature more relaxed policies, requiring verification only above a certain amount of holdings. KYC guidelines vary by exchange, by the region the exchange is located and the laws that govern the region.

Cryptocurrency exchanges often feature an order and trade history section, as well as a performance dashboard to track portfolio gains and losses. Cryptocurrency exchanges also have a number of safety and security features that vary by exchange quality.

Only cutting-edge platforms such as Covesting offer advanced features such as copy-trading, quick-order execution, and more.

Know Your Customer and Anti-Money Laundering Procedures

Most exchanges require identify verification documentation to be provided by a user before trading can begin. Due to cryptocurrency exchanges acting as brokers of financial instruments, they are held to certain varying regulatory standards depending on location.

Exchanges are typically required to gather identifying information of their customers to comply with global anti-money laundering laws.

Providing documentation is simple, fast, and also offers customers certain security protections. Identification on file can be used to prevent unauthorized access to a user’s assets.

How to Fund Your Cryptocurrency Exchange Wallet

Each cryptocurrency exchange features a different wallet type for each asset. Each type of asset has a different wallet address. Be extra careful and be sure to double-check all addresses are correct before sending any funds.

Cryptocurrency exchanges feature wallets for each individual cryptocurrency asset, and many have separate wallets for fiat currencies such as USD. Fiat accounts can usually be funded by credit card, ACH, or by a bank wire.

How to Trade Cryptocurrencies on a Cryptocurrency Exchange

Every exchange offers a unique set of cryptocurrencies for trading. The most common cryptocurrency asset available for trading is Bitcoin (BTC). Most other cryptocurrencies are offered on exchanges via a trading pair against BTC. For example, a Bitcoin and Ripple trading pair would be listed as BTC/XRP.

Cryptocurrency are often paired with fiat currencies, for example XRP/USD.

Most cryptocurrency exchanges feature a few different order types, including market orders, limit-buys, and stop-loss orders.

Market orders simply purchase a cryptocurrency outright at the current market price, and adds the cryptocurrency to the user’s wallet.

Limit-buy orders are orders placed higher than a current asset’s price. This type of order prevents an asset’s value from increasing too much over what the investor wants to pay, triggering a buy of the asset when it reaches a certain price point.

Stop-loss orders can be placed lower than a current asset’s price. This type of order prevents an asset’s value from falling lower than an investor wants, triggering a sell of the asset when it reaches a certain price point.

Cryptocurrency Exchange Safety and Security

Cryptocurrency exchanges are often the target of intrusion attempts by hackers. In the largest ever reported hack of a cryptocurrency exchange, over $500 million in cryptocurrencies were stolen from Coincheck at the beginning of 2018.

Taking steps to ensure funds are safe and secure are of the utmost importance for investors. Choosing a reputable cryptocurrency exchange – such a Covesting – is paramount. In addition, enabling important security features such as two-factor authentication is recommended as an added measure of protection.

Be sure to check to ensure any email, mail, or telephone correspondence related to a cryptocurrency exchange is from an official channel. Hackers often post as legitimate cryptocurrency exchange employees in an attempt to gain access to user funds.

In the end, an exchange’s security is only as good as the exchange’s infrastructure and require the exchange’s executive teams to care about its customers. Extensive research is recommended to review a cryptocurrency exchange’s reputation.

The DEX Difference: Decentralized Cryptocurrency Exchanges

Cryptocurrency exchanges are typically centralized, meaning that they are controlled by a company or entity. However, there is a new breed of cryptocurrency exchanges popping up, called decentralized exchanges.

These decentralized exchanges act as dApps, allowing cryptocurrency trading to occur directly from an ERC20-based Ethereum wallet. The assets are never stored on an exchange, and customer information is not always required.

While decentralized cryptocurrency exchanges are said to have better security due to the assets not being stored on the exchange itself, theft is still not impossible.

Regulated and Licensed Cryptocurrency Exchanges

Depending on where an exchange is located, it may be required by law to adhere to certain regulatory standards set forth by financial market regulators in each respective region. Oversight from regulators should be welcomed by investors, as it forces exchanges that seek to be licensed to have the required infrastructure, security, operational support, and expertise in order to protect customers.

Licensed-Exchanges must work with financial regulators at all times on compliance, creating a much safer environment for investors. It also often provides exchanges with the ability to offer additional fiat account funding methods.

Look for exchanges that work with financial regulators in their respective region, or those that have received a license, such as Covesting’s DLT License obtained from the Gibraltar Financial Services Commission.

How to Sign Up For a Cryptocurrency Exchange

To sign up for one of the world’s most reputable, fully-licensed cryptocurrency exchanges with the most advanced trading platform and features, visit Covesting’s user registration page and sign up for a new account. Here is how to get started:

Login to the Covesting platform or register for a new account Complete the KYC process and wait for verification Go the funds section and deposit any cryptocurrency currently available for trading Transfer your deposited funds from wallet to trading portfolio Start trading on Covesting platform!

Feel free to contact Covesting’s live 24/7 support with any additional questions.