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A bitcoin exchange is a digital 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 their cryptocurrency.

Bitcoin exchange programs match buyers with sellers. Just like a traditional stock exchange, traders can opt 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.

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 ask 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 that he can get bitcoins for a better price could decide on a limit order for, say, $2260.10. If a vendor matches his/her ask price with this purchase or puts a price below this figure, the buyer will get filled.

Online bitcoin marketplaces usually designate bitcoin participants as either manufacturers 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 trader on the other end of this transaction. When the price is matched, the buyer or seller that set the limit price is known as a manufacturer.

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All bitcoin exchanges have transaction fees that are applied to every completed buy and sell order completed within the exchange. The fee rate is dependent on the quantity of bitcoin transactions that is conducted. For instance, bitcoin exchange Poloniex has its speed 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 billed. .

To transact in bitcoin on an exchange, a user has to register with the exchange and undergo a set of verification processes to authenticate his or her identity. Once the authentication is successful, an account is opened for the user who then has to transfer funds into this account prior to s/he can purchase coins.

A dealer who'd like to withdraw money from his or her account could do so using the options provided by his exchange which could include a bank transfer, PayPal transfer, check mailing, cash delivery, bank wire, or credit card transfer. .

Making deposits and withdrawals come at a cost, depending on the payment method chosen to transfer funds. The higher the chance 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 where the funds being transferred can be reversed and returned to the user upon his/her petition to the bank. .

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In addition to transaction fees and funds transfer fees, traders may also be subject to currency conversion fees, depending on the currencies that are approved from the bitcoin exchange. If a user transfers Canadian bucks to an exchange which only deals in US dollars, the bank or the exchange will convert the CAD to USD for a fee.

Foreign exchange spreads are important measures when transacting in bitcoin and change depending on how liquid the bitcoin exchange is. For example, on May 31, 2017, the best bitcoin bid and ask on Kraken, a bitcoin exchange program, 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 either XBT or BTC( depending on the exchange). .

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Note that a bitcoin exchange is different from address 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 support for bitcoin holders to store their coins safely. To be more technical, bitcoin pockets store personal keys that are utilized to authorize transactions and access the bitcoin speech of a user.

Actual exchanges, like MtGox or Bitstamp, are really only a moderate between traders. People can set limit orders to buy / sell bitcoins for a certain cost. The exchange will match buyers and sellers when conditions of the buyer and the seller are met.