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A bitcoin exchange is an electronic marketplace where traders can buy and sell bitcoins using different fiat currencies or altcoins. A bitcoin currency exchange is an online platform that acts as an intermediary between buyers and sellers of all their cryptocurrency.

Bitcoin exchange programs match buyers with sellers. Like a traditional stock exchange, traders can choose to purchase and market bitcoin by inputting either a market order or a limit order. When a market order is chosen, the trader is authorizing the exchange to trade his coins to get the best available deal in the online market.

For example, on a bitcoin exchange, three coin sellers are asking for BTC/USD 2265.75, BTC/USD 2269.55, and BTC/USD 2270.00. A trader who initiates a market order to buy bitcoins will have his order filled at the best ask price of 2265.75. If only five bitcoins are available for the best request and 10 coins are offered for $2269.55, and the dealer wants to buy 10 at market, his order will be filled with 5 coins @ $2265.75 and the remaining 5 @ $2269.55. .

However, a trader who thinks he can buy bitcoins to get a better price could decide on a limit order , say, $2260.10. If a vendor matches his/her request price with this purchase or puts a price under this figure, the buyer will get filled.

Online bitcoin marketplaces usually designate bitcoin participants as either makers or takers. When a buyer or seller puts a limit order, the exchange puts adds it to its order book until the purchase price is matched by another dealer on the opposite end of the transaction. When the cost is matched, the buyer or seller who set the limit cost is referred to as a maker.

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All bitcoin exchanges have transaction fees that are applied to each finished buy and sell order carried out within the exchange. The fee rate is dependent on the volume of bitcoin transactions that is conducted. For example, bitcoin exchange Poloniex has its own speed ranging from 0 to 0.25%, GDAX fees range from 0 to 0.30%, Krakens prices range from 0 to 0.36 percent, and Paxful charges 1% of the amount of a sale to the vendor but buyers don't get charged. .

To transact in bitcoin on an exchange, a user has to register with the exchange and go through a series of verification processes to authenticate their identity. Once the authentication is successful, an account is opened for the user who then must transfer funds into the account prior to s/he can buy coins.

A trader who would like to withdraw money from her or his account could do this using the options provided by his exchange that could include a bank transfer, PayPal transfer, check mailing, cash delivery, bank card, or credit card transfer. .

Making deposits and withdrawals come at a cost, depending on the payment method chosen to transfer funds. The greater the risk of a chargeback in the payment medium, the greater the fee. Making a bank draft or wiring money to the exchange has a lesser risk of a chargeback in contrast to funding your account with PayPal or a credit/debit card at which the funds being transferred can be reversed and returned to the consumer upon his/her request to the bank. .

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In addition to transaction fees and funds transfer charges, traders may also be subject to currency conversion prices, depending on the currencies Recommended Reading that are approved by the bitcoin exchange. If an individual transfers Canadian dollars to an exchange that only deals in US dollars, the bank or the exchange will convert the CAD to USD for a commission.

Foreign exchange spreads are important measures when transacting in bitcoin and change depending on how liquid the bitcoin exchange is. For instance, on May 31, 2017, the best bitcoin bidding and ask on Kraken, a bitcoin exchange system, was XBT/USD 2,314.07 and XBT/USD 2,317.75, respectively. Another online exchange, GDAX, had its best bid and ask time for the same time window as BTC/USD 2314.99 and BTC/USD 2319.00.

(Note that the Bitcoin ticker is XBT or BTC, depending on the exchange). .

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Note that a bitcoin exchange is different from a bitcoin wallet. While the former offers a stage by which bitcoin buyers and sellers can transact with each other, the latter is simply a digital storage service for bitcoin holders to store their coins safely. To be more technical, bitcoin wallets store private keys that are used to authorize transactions and access the bitcoin address of an individual.

Actual exchanges, like MtGox or even Bitstamp, are really just a moderate between traders. People can place limit orders to purchase / sell bitcoins for a certain cost. The exchange will suit buyers and sellers when conditions of both the buyer and the seller are fulfilled.

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