ExchangesThis is the approved revision of this page, as well as being the most recent.
Cryptocurrencies exchange is a place where people exchange some cryptocurrencies for another or for main national currencies (dollar, euro, yen etc.) It is a secondary place to earn them after mining and, currently, primary to spend.
- Category: Exchanges
Thanks to the high volatility of cryptocurrencies most people use them to speculate in different exchanges. During 2013 the Bitcoin exchange rate has risen by 5580% which is in no way comparable to 30% return in the stock market. This particular quality of cryptocurrencies is what attracts a lot of major investors. For example Winklevoss brothers invested $11 million in Bitcoin in April 2013 and in the end of the same year Andreessen Horowitz venture fund along with some other investors have invested a record $25 million in the cryptocurrency thanks to the Coinbase wallet system.
Types of exchangesEdit
Exchanges can be divided into two types:
- Those where exchange of bitcoins and some primary forks for fiat money (USD, EUR, GBP) is possible. Usually these are major exchanges.
- Those where it is only possible to exchange for Bitcoin. Fork trading happens here.
Some forks can only be sold/exchanged in particular exchanges.
Adding new coins to exchangeEdit
When new fork is created it is added to exchanges through voting that takes place on exchanges’ blogs of forums.
- An example of voting on adding Corgicoin to several major exchanges:
Exchanges with fiat currenciesEdit
The very first cryptocurrencies exchange. It was established in 2007. In the beginning it was trading Magic the Gathering game cards from which time comes the name: Magic The Gathering Online eXchange. During August 2013th about 47% of all transactions in the Bitcoin network were made through this site. Throughout January 2014th the exchange was third largest stock exchange in terms of trading extent and the Bitcoin exchange rate was significantly higher than in other similar exchanges due to delays in withdrawing funds in dollars, arising due to the actions of the U.S. authorities.
Since late February 2014th the exchange is closed because of large amount of funds belonging to customers and the company going missing – the sum was estimated to be around 850,000 BTC an equivalent of more than $450 million at the time.
The second largest exchange after Mt.Gox. You have to confirm your identity to trade in it. The trading is only conducted in the BTC/USD pair.
The largest Russian exchange which conducts trading between fiat and cryptocurrencies in real time. Support is available in both English and Russian languages. As of February 2014 it ranks second in terms of trading volume in the BTC/USD pair and first in BTC/RUR.
The exchange isn’t connected to Russian legal system in any way because one of the banks providing services to it is situated in Czech Republic, the company itself is registered in Bulgaria, the managing company is based on Cyprus and the owners are two Russian programmers that claim to have been working at Skolkovo at some point.
- The exchange has its own trading bot "MetaTrader 4"
- There’s chat function in three languages (English, Russian and Chinese) with some restrictions: there’s a time interval between one user’s messages and you have to have at least $100 on your account to access the chat.
- No identity confirmation is needed
US venture-backed exchange.
BTCChina и HuobiEdit
Two Chinese exchanges. Trading is only conducted in the national currency: BTC/CNY.
BTCChina was the world’s largest cryptocurrency exchange and exerted a strong influence on the global rate of Bitcoin up to January 2014th. Then the Central Bank of China started introducing restrictions on Bitcoin operations and soon prohibited the trading altogether. But on January 30th the exchange resumed trading.
Huobi gained popularity after BTCChina’s closing.
Hong Kong Exchange. Called "First Bitcoin Stock Exchange". First Hong Kong Bitcoin Exchange who starts trading with Hong Kong Dollar. Now at 1Bse open 22 trade pairs for Bitcoin, Litecoin, Dogecoin, Darkcoin, Hong Kong Dollar, US Dollar, Euro, Singapore Dollar & Chinese Yuan.
Exchanges with fork tradingEdit
- cryptsy.com – one of the biggest of such exchanges. It provides the most wide choice of forks that can be traded for Bitcoin. Trading is conducted in pairs with BTC, LTC and XPM. Trading volumes on popular forks are around $0.5 million. The average order is ~20 BTC.
- bter.com – the main feature of this exchange is a large choice of forks that can be traded for national currency (CNY) and other cryptocurrencies. Trading is conducted in pairs with BTC, LTC and CNY. The average bid/buy order of popular forks is ~1.5 BTC.
- coinedup.com – here different forks can be exchanged for primary cryptocurrencies: BTC, LTC and DOGE. Some cryptocurrencies are traded here exclusively. Average order is ~1.5 BTC.
- poloniex.com – trading in pairs with BTC and LTC. There are some exclusive cryptocurrencies. Average order is <1 BTC.
- www.mintpal.com – major amount of trading is conducted in pairs with Bitcoin. Only Mintcoin is traded for LTC. There are several exclusive cryptocurrencies. Average bid/buy order for popular forks is <1 BTC although there are occasional rate shocks for different pairs with average orders rising up to 3-4 BTC.
Principles of trading in cryptocurrencies exchangesEdit
Main principles of trading and speculation on cryptocurrencies and stock markets are similar (buy low, sell high). Therefore to achieve some success in this sphere you first have to study basics of stock exchange trading (trading with stocks, futures, options etc.)
Main information components of exchangesEdit
When entering any exchange site one can spot several principal components:
- Buy orders / Sell orders
- History of transactions
- Trading volume (shown in some exchanges)
Let’s examine each of them in more detail.
The chart shows changes in cryptocurrency rate over time. In its essence the chart is a graphic representation of spread changes. Spread is a difference between best prices on ask and bid orders at the same point of time.
The chart itself is usually presented in the form of Japanese candlesticks.
Japanese candlestick is a way of representing the price movement over certain period of time. Candlesticks provide useful information about market trend or possible changes in said trend by presenting price movement in a special graphical manner.
1 candlestick represents price movement (up or down) during a certain period of time (which can be adjusted in certain exchanges) that is usually 10, 15 or 30 minutes. Hence to form one candlestick requires 10, 15 or 30 minutes. Then the next candlestick begins forming, and so on.
Japanese candlestick consists of several components:
- Candlestick body. The wide part of the candlestick is called the body and it represents the range between opening and closing prices of trading for a certain period of time. If the body is black (or red) that means that closing price was lower than opening price and the candlestick in that case is called bearish (i.e. demonstrates the price falling). If the body is white (or green) then the closing price was higher than opening price and the candlestick is called bullish (i.e. shows the price rising).
- The lines above and below the candle’s body are called its shadows. They represent the highest and lowest prices during a certain period of time. If a candlestick doesn’t have upper shadow they say that it has its top cut. If there’s no lower shadow than its base is cut. Japanese candlesticks with small body sizes and long shadows are called Spinning Tops. The ones without a real body (closing price is equal or almost equal to opening price) are called Doji.
These are tables that show the nearest buyers and sellers. They are called order books. Only declared offers to buy/sell which can work out if someone decides to buy/sell at that price are displayed here. The table is divided into three columns: price the people are ready to buy/sell at; the amount of all cryptocoins that people are ready to buy/sell at that price and the sum in dollars/euros (or a secondary cryptocurrency exchanged for the main one) that equals to the amount of coins getting sold/bought at that price.
The order book is formed as follows: to make a deal in the exchange one has to file an order through the form of purchase/sale where primary parameters of the upcoming bargain will be listed: price and amount. After the order is received by the exchange for processing the search for an opposite order begins and if such an order is found the transaction is made (for example if you’re selling there are purchase orders with equal or higher price searched for). If an opposite order isn’t found, your order gets listed in the order book separately (if no one else wants to buy/sell at your price) or together with an order with the same price.
Orders table analysisEdit
By using the orders table one can calculate the spread of particular cryptocurrency.
The image demonstrates an order book in the BTC-E exchange and the spread here is equal to 453.344 - 452 = 1.344 USD.
It is the order book where you can get information about major players’ orders from and they can be used to make trading decisions. But one shouldn’t forget that not all orders are listed here but only the closest ones to market rate.
You have to watch for major orders (ones for bigger sums compared to the current trend) because they greatly influence the rate movement. If a large purchase order is listed close to market rate than there’s rate growth possible and vice-versa a large sell order may cause a rate fall.
Passive and aggressive orders.
Passive orders are the ones that are statically located at prices close to each other, i.e. they don’t move and sort of guard a certain level without showing any aggression. Order book shows passive orders at the moments when market approaches strong graphical level of resistance (or support). As a result of market struggle that level will either be breached or bounced off from.
Aggressive orders are the ones that are conducted momentarily, i.e. the purchase or selling is made at existing price and the larger the order the higher (when buying) or lower (when selling) will the rate go.
Levels of support or resistance. These are the lines that are drafted on the chart at price maximums and minimums.
Level of support is a line drafted at the bottom at price minimums. This level is created by large purchase orders at these prices. If the exchange rate drops, i.e. large selling orders are carried through than as soon as the price drops down to the level of buying a large order, this order is carried through in full or in part (depending on the amount of people that are ready to offer their money in exchange for a commodity/cryptocurrency) thus raising the rate. At a new height the sellers will sell the commodity or cryptocurrency again and the rate will fall yet again to the level of a major purchase order. So it will go up until nearest large orders completely run out and the support level will be breached and the rate will fall to the next major order.
Resistance level is opposite to the support level in direction but is the same in essence: so long as the price is rising, purchase orders exceed the selling orders but when the price reaches the level at which a major purchase order is listed the price falls down. The level may be breached if a large purchase order will exceed the selling order.
Trend is a direction of the described levels (left to right). Rising if it goes up and downtrend if it goes down.
History of transactionsEdit
Shows particular buyers/sellers and the prices and amounts they are trading at. History of transactions can be used to conclude trading volume.
Trading volume analysisEdit
This parameter is represented as some figure expressed in currency or securities that demonstrates the magnitude of all deals struck during a certain period of time. Analysis of this data is spread into three directions: analyzes of vertical and horizontal volume and cluster analysis. There’s primarily vertical volume analyzed in cryptocurrency exchanges.
Vertical volume is data about the number of deals struck demonstrated under the chart in the form of columns each of which corresponds to the number of conducted transactions during a period of time specified in the terminal (for example if the chart is hourly than each column will reflect the information about how much exchange instruments (bitcoins) were moved from hands to hands during one hour, or during one day if the chart is daily. By analyzing the amount of deals depicted with histograms one can determine the players’ interest towards one price level or another
You must always remember that market doesn’t rise because more bitcoins are bought than sold and it doesn’t fall because more bitcoins are sold. The market movement depends on aggression directed one way or the opposite. If the market is dominated by aggressive buyers that don’t care for the purchase price they will list orders that will be carried through instantly at the current prices. Such orders tend to be listed by more emotional players while professional prefer to work with limit orders (setting their own price based on market analysis).
Key points during vertical volume analysis are climax buying or selling points during which the trading volume indicator can rise 5 to 10 times compared to average volume. In cases when volume climax arises in the same direction as current trend it says more about the strength of the current trend and this point should not be used as a signal to enter the position.
If culminating volume appears in corrective direction in regard to long-run trends the probability of correction ending with further return to previous course increases. It is during such situations one should look for a point to enter the market.
Special properties of cryptocurrency exchangesEdit
Cryptocurrency market is different from stock exchanges in such regard that volatility (rate shocks) of cryptocurrencies is significantly higher than that of stocks, futures, fiat money etc. As was already pointed out during 2013 the Bitcoin exchange rate has risen by ~5500%. Stock exchange fluctuations are hundreds times less significant. To make considerable profits in stock exchanges one has to invest considerable sums of money. Cryptocurrency exchanges allow for earning significant profits while investing much less money: the exchange rate sometimes fluctuates so widely that $5000 can be turned into $30,000-$40,000 in just a couple of days.
Technical analysis of charts. With regard to the approach which is used to predict the movement of the course in the stock market half the people believe that it does not apply to the cryptocurrencies market because of "nature" of crypto-economy being different to that of traditional markets, and the other half believes that such an approach can also be used and in the cryptocurrencies market.
To decide which half one belongs to is up to oneself but some of the tools to help working with the chart can be found here bitcoinwisdom.com.
The main work to be done when predicting the exchange rate in the stock market you have to follow the news regarding the goods in question: reputation of the companies if it’s shares, actions of these companies, things happening to them – all this affects the value of their shares.
There isn’t as much news about cryptocurrencies and some cryptocurrencies don’t even have news issued about them at all. In order to raise certain currency’s exchange rate if it’s capitalization isn’t very high a group of people can arrange a simultaneous investment of a relatively high sum of money to attract attention of other traders and thus make them buy the coin in question at a high price. These machinations are obviously not published in advance and you only have time to buy at a still rising price.
Other things that may cause price to rise include some popular company declaring that it accepts payments in a particular cryptocurrency from now on or any approval of governments. These news should be discovered as soon as possible after their publishment. Such news are usually highlighted on different niche sites about cryptocurrencies. You shouldn’t look for this sort of news on general news portals because they usually reach them last.
Information about possible growth can be found on thematic forums in official cryptocurrencies’ threads where users may very much like the description of a particular cryptocoins and start to buy it en masse. The main of all such forums would be bitcointalk.org.
So you need to follow many information sites on cryptocurrencies and browse forums.
Main rules of the gameEdit
Several aspects can be singled out by following which in the exchange you can win or at least not lose:
- Don’t be greedy. Don’t wait for rates to grow even higher if they’ve already grown fairly because you can miss your profit, i.e. you shouldn’t set your selling price too high if the currency is actively bought at a slightly lower one – the players may not comply with yours.
- Be patient. When you bought at some price and don’t notice any significant fluctuation you shouldn’t sell too fast. There were a lot of examples of a smooth rate skyrocketing up tenfold a week or two later. You have to monitor newsfeed and users’ comments on that coin.
- Always look at order book. If there are few buyers and a lot of sellers then buying at a seemingly attractive price can lead to you not being able to sell everything you bought.
- Check the trading volume and currency’s capitalization to know if you should wait sharp swings soon.
Monitoring and analysisEdit
Services that help tracking trading volumes (amount of $ involved in buying/selling), rates fluctuation, price of cryptocurrencies in different exchanges as well as their return.
- coinmarketcap.com – demonstrates total capitalization of different cryptocurrencies, current price (in $), amount of coins in circulation, trading volume in last 24 hours, price growth in last 24 hours, trading volume chart.
- bitcoinwisdom.com – a detailed chart that demonstrates Bitcoin trading volume and rates in 3 main exchanges in real time. There are tools for chart tuning and technical analysis.