To those of us that haven’t really ventured into the stock market, the concept of an exchange may seem a little perplexing — let alone that of your new found interest, a exchange.
A traditional exchange by definition is a platform where stock brokers and traders can buy and sell securities (an asset of a company such as shares of a stock or bond or other financial instruments).
A exchange is not too different. The correct definition would be a digital assets exchange, because that’s what is being bought and sold — a digital asset. have gained mainstream reputation for being a decentralised alternative to traditional cash. While merchants around the world have increasingly started accepting and other as a mode of payment, their use goes beyond that and the scope of this post. But simply put, they have a value that’s based on speculation, or how the organisation behind the project is delivering their promises on the technologies and use cases of the digital asset.
In the same way one would benefit with buying Apple stock before a speculated spike owing to a major successful product announcement, digital assets aren’t so different. The traders buying that stock would make certain assumptions based on leading up to that Apple event, on how the stock will do. Depending on their assumptions, their bid if they’re buying or ask if they’re selling can go up and down. That average price is what determines the value of the stock.
In the same manner, , , and other popular digital assets see their value going up and down over time, based on speculation and industry .
On a digital assets exchange, you have different markets. A Canadian Dollar (CAD) — Lumens (XLM) is a market, for example, where you can buy or sell Lumens (XLM) for Canadian Dollars (CAD).
A buyer of XLM would place a ‘Buy Order’ for X amount of XLM at Y Canadian Dollars per XLM.
A seller of XLM would place a ‘Sell Order’ to sell X amount of XLM and expect Y Canadian Dollars per XLM.
The engine of the digital assets exchange finds people that have minimum matching amounts and rates.
Take three scenarios :
- If a buyer places a sell order for 10 XLM @ 0.20/XLM and a seller places an order for 10 XLM @ 0.20/XLM, this ideal case gets matched.
- If a seller placed a sell order 10 XLM @ 0.20 CAD/XLM, and a buyer places a buy order for 5 XLM at 0.20 CAD/XLM, the first one’s ‘Sell Order’ gets partially completed, and 5 of their XLM gets matched and transfered to the buyer.
- If a buyer places a buy order for 10 XLM @ 0.22 CAD/XLM and a seller places a sell order for 5 CAD at 0.18 CAD/XLM, this also gets matched but the buyer saves 4 cents per XLM to match that order.
Easy, right?
As a novice trader, that is a good foundation of information to keep in mind before diving into buying and selling of digital assets on a exchange.
Published at Fri, 03 May 2019 20:05:12 +0000
