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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 serves as an intermediary between buyers and sellers of their cryptocurrency.

Bitcoin exchange platforms match buyers with sellers. Like a traditional stock exchange, traders can choose to buy and market bitcoin by inputting either a market order or a limit order. When a market order is selected, the trader will be authorizing the exchange to trade his coins for the best available deal in the online marketplace.

As an 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 get 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 up with 5 coins @ $2265.75 and the remaining 5 @ $2269.55. .

But a trader who thinks that he can get bitcoins for a better price could set a limit order , say, $2260.10. If a seller matches his/her request price with this purchase or sets a price below this figure, the purchaser will get filled.

Online bitcoin marketplaces usually designate bitcoin participants as both manufacturers or takers. When a purchaser or seller places a limit order, the exchange puts adds it to its order book until the purchase price is matched by another trader on the other end of the transaction. When the cost is matched, the purchaser or seller that set the limit price is known as a manufacturer.

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All of bitcoin exchanges have transaction fees which are applied to each completed buy and sell order completed within the exchange. The commission rate is dependent on the quantity of bitcoin transactions that's conducted. For example, bitcoin exchange Poloniex has its rate ranging from 0 to $ 0.25 percent, GDAX prices range from 0 to 0.30 percent, Krakens fees range from 0 to 0.36%, and Paxful charges 1 percent of the amount of a sale to the seller but buyers don't get charged. .

To transact in bitcoin on an exchange, a user must register with the exchange and undergo a set of verification procedures 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'd like to withdraw money from his or her account could do so 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 from a payment medium, the higher the fee. Making a bank draft or wiring money to the exchange includes a lesser risk of a chargeback in contrast to funding your account with PayPal or a credit/debit card where 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 might also be subject to currency conversion fees, depending on the currencies which are approved from the bitcoin exchange. In case a user transfers Canadian bucks to an exchange which only deals in US dollars, Extra resources 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 vary 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 exact 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 provides a platform by which bitcoin buyers and sellers can transact with each other, the latter is only a digital storage service for bitcoin holders to store their coins safely. To be technical, bitcoin pockets store personal keys that are used to authorize transactions and get the bitcoin address of a user.

Real exchanges, like MtGox or Bitstamp, are really only a medium between dealers. Folks can place limit orders to purchase / sell bitcoins for a certain cost. The exchange will match buyers and sellers when conditions of both the buyer and the seller are met.