How do crypto exchanges work?
They allow exchanging one cryptocurrency for another, buying and selling coins, and exchanging fiat money into crypto.
Crypto exchanges set the rate of the currencies — both coins and tokens. The cryptocurrency rate usually depends on the actions of sellers and buyers, although other factors can affect the price.
Various crypto exchanges may have different options and functions. Some are for traders, while others are for a prompt crypto-fiat exchange. Crypto exchanges — designed for regular traders — allow you to buy crypto and sell them with lower commission fees than on crypto-to-fiat exchanges. Also, trading platforms charge fees for withdrawing money from the account.
Crypto exchanges work similarly to regular stock exchanges. The difference is that, on a stock exchange, traders buy and sell assets — shares or derivatives — to profit from their changing rates. On crypto exchanges, traders use cryptocurrency pairs to benefit from the highly volatile currency rates.
What are cryptocurrency pairs?
Trading pairs of cryptocurrencies allows you to profit from the currencies changing rates — it is the primary business for crypto traders.
Keep in mind that the order of currencies in the pair always matters. For example, if you anticipate that BTC may increase against USD soon, you should buy the BTC/USD pair — with BTC in first place and USD second — and vice versa; if you think that BTC may fall against USD, in which case you purchase should the USD/BTC pair — with USD coming first.
Some popular exchanges avoid using fiat money altogether by offering pairs only in crypto. The most popular crypto-to-crypto pairs are BTC/LTC or LTC/BTC and ETH/BTC or BTC/ETH. However, plenty of crypto exchanges allow trades with USD (USD/BTC, BTC/USD, and so on). After earning a profit — or maybe a loss — you close the deal and start another.
Why do crypto exchanges have different prices?
Because exchanges are not connected, prices vary depending on each of these exchanges' buy and sell activity.
Every exchange calculates the price of Bitcoin based on its volume of trades, as well as the supply and demand of its users. This means that the bigger the exchange, the more market-relevant price you get.
There is no ‘stable’ or ‘fair’ price for Bitcoin or any other coin — the market always determines it at each moment.
Many news services — Google being one of them — use an aggregate price of Bitcoin and other coins. Many sites use their own price index for BTC, ETH, and other currencies, which is calculated as an average value based on the prices of 27 popular exchanges.