Where Does the Cryptocurrency Spot Market Trade?

Dear Global Bitgetters,

You can trade cryptocurrencies on over-the-counter, peer-to-peer, centralized, and decentralized exchanges. Let's look at each segment of the spot market for cryptocurrencies.

Over-the-counter (OTC)

Over-the-counter (OTC) spot trading is when two parties trade cryptocurrency outside of crypto exchanges. Dealers and brokers act as market makers by offering a range of prices at which they will buy or sell a coin. OTC spot markets are often private and less regulated than exchange environments. They also make it possible for dealers to exchange larger amounts of cryptocurrency without materially changing the market price.

Peer-to-peer (P2P)

Similar to OTC, peer-to-peer trading is available without the use of intermediaries. With peer-to-peer trading, you have more control over your trading activities, including the ability to choose your sellers, buyers, settlement dates, prices, and payment methods. Most P2P systems require that buyers and sellers establish bids and offers using these preferences in order to facilitate exchanges. Even while P2P has numerous benefits, the trading environment might be risky without the help of other parties.

Decentralized Exchanges (DEXs)

Decentralized exchange platforms provide you with direct access to the spot market. Users frequently trade against the liquidity in a type of smart contract known as an automated market maker (AMMs), in contrast to the old P2P approach or CEXs (AMMs). Users can trade cryptocurrencies directly from their wallets without ceding control of their assets. Through decentralized exchanges, you can access the spot market without giving up your privacy or running the risk of doing business with a third party. On DEXs, trading expenses are often lower. However, if their blockchain networks get congested, transaction fees can increase. DEXs can have low liquidity and are generally more challenging to utilize than their centralized counterparts.

Centralized Exchanges (CEXs)

Despite the rapid evolution of Decentralised Finance (DeFi), CEXs remain enormously popular due to the high level of liquidity and security. CEXs use the order book system to match bid and ask price, which means the more orders there are, the more liquid the market is. CEXs also provide fiat- crypto trading pairs and act as the guarantee for the completion of transactions. They are especially beginner-friendly - most individual investors made their first crypto transactions “on-ramp” or, in simpler terms, with their credit cards. Right now, using CEXs is the most common way to access the cryptocurrency spot market.