When you think of a stock market, what comes to mind? Many people will say a large brick-and-mortar building with a giant electronic board where the current stocks being traded are shown. This location is often in a busy area of the city because it is needed for all the buyer and seller interaction that takes place there.
Why would someone go to this central marketplace when they could just trade stocks from their phone or computer in today’s world? The answer is nothing. Transactions do not occur at these physical locations anymore because transactions have been made digital through an exchange.
Now imagine if you wanted to buy stock, but instead of going through a centralised third party like a stock exchange, you could make deals with your fellow peers. If you wanted to, you could access the exchanges (or decentralised stock exchanges) yourself and make deals with people that may or may not be near where you live. This is what decentralised exchanges are; freedom of choice in trading/buying/selling without any third-parties getting in between.
When using a decentralised exchange, there are still fees. However, these fees are much lower than those associated with centralised platforms like Coin base or Kraken because no middlemen are cutting. You also have access to more options to trade which works for some traders who want variety in their portfolios. Many times though, when trading on decentralised exchanges, making trades can take longer due to low liquidity, so it’s essential to research an asset before investing on these exchanges thoroughly.
Transferring assets to a wallet
The process of using a decentralised exchange is not that much different from the centralised ones we use today. You deposit some assets into your wallet, make trades of those assets for other assets, and then withdraw those assets back out to make sure they are safe. The difficulty comes from transferring your money onto the decentralised platform of choice because you need an outside wallet such as MyEtherWallet or Jaxx Wallet to do it. You can’t just go to coinbase and transfer over USD to a decentralised exchange like EtherDelta; you first must buy Ethereum with USD and then send it over to EtherDelta (make sure that the Ethereum network is not congested at this time!).Use this link to find out more.
Buy an asset
Once your money is on the decentralised exchange of your choice, you must find an asset to buy and then send that asset to your wallet. This can be challenging because it’s not like a centralised exchange where you just click one button, and it will deposit into your account. You have to paste in addresses and wait for confirmations. Still, it’s worth the hassle because decentralised exchanges usually have much lower fees than their centralised counterparts (due to lack of overhead).
Hardware/ paper wallet
After buying whatever asset you want on a decentralised platform, make sure to withdraw them back out onto a more secure wallet like hardware wallets or paper wallets. And again, always do research! While decentralised exchanges are great, they still come with risks; hackers get smarter every day, so make sure that your money goes into the right hands.
The last thing you want to do is lose money by trading on the wrong exchange or trading/buying too late because of high fees and long wait times. There are always new risks with decentralised exchanges, so make sure you know what you’re getting yourself into before making any hasty decisions.
Remember: if it sounds too good to be true, then it probably is. So keep that in mind when looking at upcoming ICO’s! Don’t go putting all your money into one coin either; remember to diversify your portfolio so that you don’t lose everything. Saxo bank can help you diversify your portfolio.