How Does a Crypto trading platform Work?
In simple terms, a cryptocurrency exchange platform is merely an online platform that serves as a middleman between seller and buyers of crypto coins. These exchanges are the primary form of obtaining and selling crypto. Even though it seems like a natural process to set up an exchange for digital currencies, it rarely happens that someone will go to the trouble of doing so.
What are some factors to be considered before setting up an exchange?
There is two kind of platforms:
- Centralized - An example of this would be Coinbase as it allows for crypto trading to fiat. The user's funds would be controlled by the exchange while the order matching would occur just off the blockchain network. Any limits and funding are taken care of by this type of exchange. Furthermore, these have high liquidity and boast advanced exchange features and charting.
- Decentralized - What comes to mind would be platforms like Etherdelta. These would serve as a peer to peer exchanges where users can directly forward cryptocurrencies to one another via a contract layer to accommodate this. Such trades are way more transparent as everything is already on the blockchain, which means there is a lower risk of experiencing hacks.
Which Crypto Will You Support?
One need to do market research on the latest cryptocurrencies and assess the reasons why you should opt for one type over another.
Would you be keen to support standard ERC-20, which is basically Ethereum tokens? What market advantage will you experience from opting for a particular cryptocurrency in place of another?
How popular will it become?
Is there a need to partner with a bank on setting up an exchange platform?
During the brainstorming stage, one should establish if you would have to convert fiat to crypto. If this is the case, then you would have to partner with a payment processor such as a bank. Take into consideration the country you intend trading in and the different transaction times.
With the aid of a payment gateway API and efficient payment processor, you would be able to provide users with the power of either adding or withdrawing funds as and when they wish to do so.
What is Required to Build a Digital Currency Exchange?
To successfully set up a digital currency exchange, you need to follow a four-part process:
1 - Trading Engine
When wanting to build an exchange platform, the trade engine would be at the heart of your foundation and constitutes the core functionalities in that it would handle:
- The execution of different transactions
- Balance calculations
- Initiate the need to access order books
- Meets the buying and selling of crypto coins
2 - Front End UI
This would involve:
- Logging in by the user
- Depositing funds and withdrawing it
- View balances, order books, monitor transactions, stats, charts, and more.
3 - Ready to Accept Cryptocurrency Wallets
Exchanges should support cryptocurrency wallets as these would store tokens. Think about investing in security when setting up an exchange for crypto.
4 - Admin Console
If need be, this enables the creators and controllers of the exchange to manage various configurations of the exchange so they may modify the operations as needed.
Options one should think about would be:Alter the trading fee
- Manage cryptocurrency listings
- Add additional cryptos
- Be afforded the ability to fund accounts during technical hiccups.
When selecting your preferred exchange, you need to exercise the following precautions:
- Check for options - There are numerous platforms on the Internet. What you need to be sure of is how many different variants of digital coins are provided and how many currency conversions are on offer. The most popular ones would be Bitcoin and Ethereum. The exchange needs to offer more options.
- Security is imperative - No doubt, the digital world is rife with mischief mongers and hackers who continuously try to hack into one or the other account for monetary gains. FIAT currency fraud is at the order of the day. There have been some cases of cryptocurrency fraud too. Safety features are essential.
- Also, the whole trading experience needs to be an easy exercise as far as the interface, liquidity part, and buying and selling are concerned.
- Ensure the trading fees offered by the exchange are in your favor.
- You need a platform that provides 24/7 customer service support as you will encounter hiccups along the way for which you require assistance.