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exchange

Trading TOKEN – Market Order vs. Limit Order

Market orders allow you to trade a token for the going price, while limit orders allow you to name your price.

When you’re ready to buy or sell a token on a decentralized exchange also called DEX, you have two main ways to determine the price you’ll trade at: the market order and the limit order. With market orders, you trade the token for whatever the going price is. With limit orders, you can name a price, and if the token hits it the trade is usually executed.

That’s the most fundamental difference between a market order and a limit order, but each type can be more appropriate for a given trading situation. Here’s what you need to consider.

Market orders get you in or out fast

The biggest advantage of a market order is that your broker can execute it quickly, because you’re taking the best price available at that moment. If you’re buying a token, a market order will execute at whatever price the seller is asking. If you’re selling, a market order will execute at whatever the buyer is bidding.

The biggest drawback of the market order is that you can’t specify the price of the trade. Many times that doesn’t matter, however. For large enterprises that are highly liquid (trade in high volumes), the difference between buyers’ bid price and sellers’ ask price — called the bid-ask spread — is cents on the dollar. Unless you’re buying huge numbers of tokens, that difference doesn’t matter.

However, if the price moves quickly, you could end up trading at a vastly different price from when you entered the order. That’s rare but possible. A more likely scenario: You enter a market order after the market closes and then the enterprice announces news that affects its token price. If you don’t cancel the order before the exchange opens the next day, you may end up trading at a much different price than you had intended.

Another potential drawback occurs with illiquid tokens, those trading on low volume. When you enter a market order, you might spike or sink the token price because there are not enough buyers or sellers at that moment to cover the order. You’ll end up with a much different price than just moments before as your order influences the market.

Go with a market order when: 

  • You want a quick execution at any cost
  • You’re trading a highly liquid token with a narrow bid-ask spread (typically cents)
  • You’re trading only a few tokens (for example, less than 1000)

Limit orders might get you the price you want

The biggest advantage of the limit order is that you get to name your price, and if the token reaches that price, the order will probably be filled. Typically, you can set limit orders to execute up to three months after you enter them, meaning you don’t have to watch compulsively to get your price.

On some (illiquid) tokens, the bid-ask spread can easily cover trading costs. For example, if the spread is 10 cents and you’re buying 100 shares, a limit order at the lower bid price would save you $10, enough to cover the commission.

The biggest drawback: You’re not guaranteed to trade the token. If the token never reaches the limit price, the trade won’t execute. Even if the token hits your limit, there may not be enough demand or supply to fill the order. That’s more likely for small, illiquid tokens.

Another drawback, especially with an order that can execute up to three months in the future, is that the token may move dramatically. Your trade may be filled at a price much different from what you could have otherwise gotten.

Imagine Ethereum announces a potentially huge novelty and its Ether (ETH) token spikes from $200 to $270, while you have a limit order to sell at $202 using a USD equivalent stablecoin like Tether as settlement. You might end up selling for $202 when you could have received more. The reverse can happen with a limit order to buy when bad news emerges. You may end up buying at a much higher price than you otherwise could have or now think the tokens’s worth.

Go with a limit order when:

  • You want to specify your price, sometimes much different from where the token is
  • You want to trade a token that’s illiquid or the bid-ask spread is large (usually more than 5 cents)
  • You’re trading a high number of tokens (for example, more than 500)

Save money on commissions

Limit orders can help you save money on commissions, especially on illiquid tokens that bounce around the bid and ask prices. But you’ll also save money by taking a buy-and-hold mentality to your investments. Because you avoid selling out of the market, you’ll incur fewer commissions and you’ll avoid capital-gains taxes, which could easily dwarf trading costs. Plus, you’ll want to stay invested to let the compound growth work its magic.

Geir Solem

How to use CryptorDex (DEX)

Tools you need to use the DEX

You need ether (ETH) and wrapped Ether (wETH) to buy & sell on the DEX exchange, as ETH and wETH is how you pay for transactions. Learn more about wrapped tokens here. You also need an ERC20 compatible wallet in order to use the DEX. We recommend Metamask.

Log into your wallet and connect it to the DEX by clicking on your wallet address that should occur in the menu at top right corner of the DEX. (Note: You need to be logged into your wallet in order to use the DEX.) You will then get a new menu, at the top of the menu click on “my wallet”. You should now see the listed tokens and your holdings of each of them.

If you already have ETH and wETH in your wallet, you are already set to begin. If not, this guide will explain how to buy both ETH and wETH under.

You are now ready to do transactions like buying and selling tokens on the DEX.

How to Unlock tokens in your wallet

You will need to unlock the token you want to sell or use as payment in a swap, so the system can take it from your wallet. On the 3rd row in the menu from the right you have “Locked?”. Click on the “lock” symbol beside the token you want to unlock. Your wallet will ask for a confirmation of the unlock, and you will need to confirm in order to complete the unlock. The lock symbol should now disappear from that token.

How to buy / sell ETH and wETH

If you have ETH, you can then buy wETH on the DEX by converting ETH to wETH by using the mall menu that now should be present up in the top left corner of the DEX. 1 wETH has the same value as 1 ETH. fill out how many ETH you want to convert to wETH, it will then give you the total transaction value including commission. Complete the transaction by clicking on “convert’. If you have wETH you can also convert to ETH using this menu.

How to send tokens

On the right side you have buttons for sending tokens or buying tokens. If you want to send some of your BIB tokens to another wallet, click the “send” button beside your holding of BIB tokens, and you get up a small form where you fill out the address of the wallet you want to send your BIB token, as well as the number of BIB tokens you want to send. The necessary ETH gas will be taken from your wallet when you initiate the transaction.

How to buy tokens

If you want to buy tokens click on the “buy” button beside the tokens listed that you want to buy, you will then get up a small form where you fill out the order details like the number of tokens you want to buy. To complete the transaction click on the “buy” button at the bottom of the form.

Buy ETH or other crypto currencies / wrapped tokens using credit card (with KYC)

How to buy ETH or other crypto currencies, using your credit card (Will include KYC – Know Your Client to be filled out).

In the top right corner, 2nd from right, click on “Buy ETH” and you will get up a small form where you fill out the amount of USD you want to use for buying ETH. A summary will show the exchange rate of ETH and how much ETH you get. Follow the guidance in order to fill out the KYC information.

Still on the small form, click at the menu in top right corner, and you get the option to buy other crypto currencies / wrapped tokens like ADA. BCH, BTC, LTC, USDT, XRP, etc. (More than 30 different cryptos).

How to swap tokens and tokens that are listed on the exchange?

On the menu up in the top right corner click on “swap”. You get a new screen where you can swap ETH with any of the tokens. Select the token you want to swap buy using the menu up in the top left corner. A small form in the middle of the screen shows the price used and how many tokens you get for the swap. Fill out how many tokens you want to send, and the number of tokens you receive will occur on the form. Click “swap” to complete the transaction.

Decentralized Finance (DEFI)

On the menu up in the top right corner click on “DEFI” and you get up a new screen with options to borrow tokens and put up tokens as collateral, giving you the possibility to leverage your trade. Unless you are a skilled trader, we do not recommend that you use leverage in your trading. 

Buy crypto to your wallet using bank transfer (Includes KYC)

On the menu up in the top right corner click on “FIAT” and you get up a new screen / form where you can buy crypto currencies. At the top of the form select the currency you want to use for purchasing crypto currencies, like USD, GBP, etc. as well as the amount you want to use for buying crypto. 

Next choose the crypto currency / wrapped token you want to buy like BAT, BTC, ETH, USDT, etc. In the form, the amount you get of your selected crypto currency that you want to buy should now occur. Click the “buy now” button to complete the transaction.

Price chart of your token

Click on “CryptorDEX” up in the top right corner and you get a screen of the listed tokens. Click on the token you want displayed with a price chart. You will then get a price chart covering the last 3 months of trading.

Over the price chart you have a menu with the following items Day, Candles, Compare, and Indicators (Technical Indicators).

Technical Indicators

Click on “Indicators” if you want to select the technical indicators to use in order to analyze the price chart like “accumulation / distribution”, “average true range”, etc. in alphabetic order. Search for the indicator you are looking for like RSI (Relative Strength Indicator”. You can learn more about technical indicators used for analyzing price structure on our investment website Elliott Wave Technician here.

Buy or Sell tokens

On the right side at the bottom, you should now see a form where you can initiate a “buy” or “sell” transaction for the token you look at in the price chart. The current order book / transactions occurs in the top half of the form.

In the form for ‘buy’ and “sell” orders, fill out the number of tokens you want to buy or sell, and the price in ETH. The calculated price should now occur at the bottom line. Remember to choose if you order is at “market” or on “limit”.

Market orders allow you to trade a token for the going price, while limit orders allow you to name your price. However, remember that newly listed tokens has yet to establish a market and the liquidity is low, then prices can swing widely. In this case use “limit” in order to control the price you buy or sell for. Click on the buy / sell button to complete the transaction. Remember if you are buying using ETH to pay, ETH need to be unlocked in your wallet before you initiate the transaction. If you are selling a token it needs to be unlocked before you can initiate a sell transactions.

Geir Solem

Overview of wrapped tokens

Description of wrapped token

A wrapped token is an asset hosted on the Ethereum blockchain with a price that is the same as another underlying asset, even if it’s not on the same blockchain or on a blockchain at all.

A wrapped token is an ERC-20 compatible token with a value identical to another asset that it represents, either through a smart contract or by being backed one-to-one with the underlying asset. 

Wrapped Bitcoin, for instance, is a token worth the same as one BTC at any given moment, as a smart contract algorithm reproduces its price in real time and regulates the underlying fund with supply and demand information gleaned from user transactions. In exchange for their money, wrapped token users get an equivalent amount of value “wrapped up” in an asset that’s more easily mobilized by decentralized applications (DApps).

Wrapped Ether, is a token worth the same as one ETH.

Types of wrapped tokens ?

Because Ethereum is the biggest DeFi ecosystem, wrapped tokens are often those hosted on other blockchains but are also stablecoins that are pegged to the dollar.

Many of the first wrapped assets were, in fact, fiat-backed stablecoins, such as tokens with prices pegged to the dollar — Tether, Coinbase’s USDC or TrueUSD. There are also euro, yen, yuan and countless other fiat stablecoins that are mostly based on the Ethereum blockchain. 

The Wrapped Zcash token (coming), a privacy coin, will provide Ethereum DApp users with the coin’s anonymity advantages, plus a reliable way to invest in Zcoin, thereby boosting its market.

Wrapped Zcash is a way for Zcash to be used within financial applications built on Ethereum — it opens a bridge from one ecosystem to the other. This two-way street benefits both Zcash and Ethereum users, as Zcash users are able to transact and invest within the many decentralized financial applications built on ETH.

This integration also brings an effect on the supply and demand for Zcash, which could prove a significant tailwind. For Ethereum users, the privacy benefits of Zcash enabled by its z-addresses and t-addresses provide new ways for decentralized finance (DeFi) applications to limit the publication of identifying information held in transaction data while still passing auditory and compliance standards.

These are backed accordingly via the reserves, with coins fed in according to the demand of online crypto exchanges and larger institutional investors who want to quickly exchange fiat money into crypto and manage their money within a given platform. This makes it as easy to deposit dollars into DeFi applications and blockchain wallets as it does to have a reliable counter currency providing traders relief from crypto asset volatility.

Blockchain interoperability

Other cryptocurrencies are beginning to launch wrapped versions of their tokens on Ethereum in larger numbers, with interoperability (The ability to share information across different blockchain networks, without restrictions) a vital consideration for solutions that want to be taken seriously.

Currently, one blockchain has no knowledge of information that might exist in a different blockchain. For instance, the Bitcoin (BTC) blockchain exists fully independently of the Ethereum (ETH) blockchain — in the sense that it has no knowledge of any information recorded there — and vice versa. Blockchain-based projects are isolated from each other, despite existing within the same industry and working with the same technology.

The crypto industry involves “a series of unconnected systems operating alongside, but walled from each other”. Blockchain interoperability is the ability to exchange data between different blockchains seamlessly, as if there were no boundaries.

Geir Solem

ERC20 Token Design Mistakes vs ERC223 Token

The old ERC20 token standard have bugs and disadvantages resulting in thousands of ERC20 tokens to be lost annually. These design mistakes has been addressed in the new ERC223 token which is fully compatible with ERC20 wallets and exchanges. 

What is ERC?

ERC means Ethereum Request for Comments. It practically allows for smart contracts to be built on the Ethereum platform based on certain standards thus creating a common interface for all Ethereum tokens. Ethereum developers recommend that any Ethereum developer who wants to create a new token should follow this set of standards to ensure that their tokens are easily recognizable on both the Ethereum network and other third-party service providers such as crypto-wallets. These ERC20 tokens can be received, and sent just like any other cryptocurrency like Bitcoin, Litecoin and Ethereum.

ERC20 bugs

The ERC20 standard is programmed software and accordingly contains some bugs and logic errors. Two different ways to handle tokens were taken into account in the creation. On the one hand, tokens can be sent to another address. A smart contract is paid by using the “approve” and “transferFrom” functions.  Thereafter, the contract may be approved to allow the tokens to be withdrawn. Afterwards the token is filled or lifted by means of “transferFrom”.

When transferring tokens for a contract with “transferFrom” this transaction is basically valid. However, the contract does not recognize it by the user, resulting in the tokens not being loaded into your account. Normally, an emergency token function is stored in the exchange contract (decentralized). If this is not the case, the tokens can not be returned and are lost forever.

ERC20 will continue to be used

Most token based projects have used the original ERC20 token standard as it is with faults. This include even  well known projects.

At present many developers are still unaware of the design mistakes and bugs in the old ERC20 tokens standard so they continue to use it in new developments.

Can the ERC223 standard solve the problems?

ERC223 is a new token standard that seeks to address the design mistakes / errors of ERC20. These problems are:

  • ERC20 provides no programmatic interface to handle incoming transactions in smart contracts.
  • ERC20 handling smart contracts typically require you to trust them with all your funds in order to use them. This is unlike native ether, which has excellent support for trustless transactions.
  • Nothing prevents the user to send ERC20 tokens to a smart contract, such as an exchange. However, due to the inability to handle incoming transactions these sent tokens will not alter the state of the smart contract (such as balance on the exchange), and it will be impossible to retrieve them from the smart contract. Effectively, these tokens get burned resulting in multi millions of USD losses in ERC20 tokens. Because of the deflationary nature of cryptocurrencies this losses will continue to accumulate.

The main improvement of ERC223

  • On top of offering the same level convenience as ERC20 tokens, it also offers its holders protection against losing tokens by introducing a revert option or altogether blocking the transfer of tokens to random contracts. Tokens can no longer be sent to non supporting contracts with the ERC223 standard.
  • ERC223 allows to deposit tokens into a contract with a single transaction (function) which reduces the use of resources. This again reduce the cost and running time of the transaction to about half compared to that of the old ERC20 standard.

ERC223 is created to be compatible with existing blockchain infrastructure, such as wallets like Mist, Parity, MyEtherWallet and MetaMask, and blockchain explorers such as Etherscan and Ethplorer.

Geir Solem

Decentralized Exchanges

Created in 2008 by the pseudonymous computer programmer Satoshi Nakamoto, bitcoin is digital money that’s tracked via a public ledger and controlled by no central bank, corporation, or individual.

Image courtesy of Wiki Commons

It’s a peer-to-peer currency based on the blockchain running on the internet that allows its users to transfer value with no central authority or third party involved. Since a network of distributed and mostly anonymous miners are all in charge of processing the transactions, we avoid problems like censorship and fraud.

The automated issuance mechanism of bitcoin through mining also seeks to remove the control of money printing from privately owned banks that lend money to the public at an interest, creating the debt based economy. The primary goal of Bitcoin, to return the control of money to its owners, is in a way lost with third party services.

With cryptocurrencies comes the need for exchanges, and centralized exchanges are easy to use, easy to access, and they provide advanced trading functionalities like margin trading and others.

However, they also represent a security risk for your funds. While some exchanges are better guarded than others, hacks are not an uncommon. There are a number or risks related to centralized exchanges like incompetence, bankruptcy, etc.

We need to exchange our currencies. There are certain items and services that we cannot buy with Bitcoin and in order to acquire Bitcoin or cryptocurrencies, most people have to exchange it for a national currency. Furthermore, some cryptocurrencies like Ether or Bitshares have special features or tools that are not present in Bitcoin. So how can we exchange our coins without entrusting them to a third party service? The answer lies with decentralized exchanges.

Image courtesy Wiki Commons

Decentralized Exchanges

A decentralized exchange is an exchange market that does not rely on a third party service to hold the customer’s funds. Instead, trades occur directly between users (peer to peer) through an automated process. This system can be achieved by creating proxy tokens (crypto assets that represent a certain fiat or crypto currency) or assets (that can represent shares in a company for example) or through a decentralized multi-signature escrow system, among other solutions.

This is an alternative to the current centralized model in which users deposit their funds and the exchange issues an IOU that can be freely traded on the platform. When a user asks to withdraw his funds, these are converted back into the cryptocurrency they represent and sent to their owner.

Advantages

The most important benefit to using a decentralized exchange over a centralized one is their “trustless” nature. You are not required to trust the security or honesty of the exchange since the funds are held by you in your personal wallet and not by a third party.

Another advantage to the decentralized model is the privacy it provides. Users are not required to disclose their personal details to anyone, except if the exchange method involves bank transfers, in which case your identity is revealed only to the person that is selling or buying from you.

In addition, the hosting of decentralized exchanges is distributed through nodes meaning that there is no risk of server downtime. To summarize,

  • No parenting by governments, banks and other institutions
  • Secure, no 3rd party involved
  • Set the unbanked free
  • Open, Transparent
  • Global, fast, efficient, 24/7
  • No identity theft
  • A platform for innovation

Disadvantages

Some decentralized exchanges require users to be online in order for an order to be listed and for the trade to take place, requiring users to perform certain actions like signaling that a payment was received.

Trading features like margin trading, lending and stop loss are currently not available in the decentralized model as they only allow the basic exchange of currency for a predetermined value.

Overview of decentralized exchanges

While there is still a way to go in order to build fully functional and convenient decentralized exchanges, there are several projects that have brought us the basic functions and an alternative way to trade currencies while keeping your funds safe from hacks, inside thefts and faulty business models.

Bitsquare is a decentralized open-source exchange that allows users to buy and sell Bitcoin for cryptocurrencies and national currencies without the need to entrust funds to third-party or middleman, meaning that the transactions occur directly between the buyer and seller. Bitsquare relies on a decentralized multi-signature escrow system to ensure that all trades are carried out honestly.

CounterParty is a meta-coin smart contract layer that embeds data into regular Bitcoin transactions. It allows anyone to issue assets or tokens inside of the Bitcoin blockchain. When trading assets for other assets, the Counterparty protocol acts as a decentralized escrow service that holds the funds until the orders are matched. When trading an asset for Bitcoin, the asset is held in escrow and the other user must make a manual bitcoin payment using the Counterparty wallet.

Waveplatform Waves Asset Exchange is allowing users to trade assets (including asset-to-asset exchange), fiat tokens, and cryptocurrencies.

Bitshares is a crypto platform with its own native currency, Bitshares. Using the Bitshares platform, users can trade BTS, Market Pegged Assets (a crypto asset pegged to another currency or commodity that always has 100% or more of its value backed by the BitShares core currency, to which they can be converted at any time) and User Issued Assets (assets that can be issued by anyone to represent shares, commodities, currencies and so on). Openledger is the Web-based version of Bitshares, running on the same underlying blockchain.

Nxt is a crypto platform (one of the first crypto 2.0 projects) that allows users to issue and trade assets. These assets, however, can only be exchanged for the coin NXT and not for other cryptocurrencies.

Komodo EasyDEX exchange will allow users to trade cryptocurrencies directly without resorting to proxy tokens, while the PAX (Pegged Asset Exchange), both being developed by the SuperNET and Komodo teams, allows users to exchange national currency assets with the privacy that zero-knowledge proofs provide.

Stashcrypto is built on the Open-Transactions financial cryptography platform, an extremely fast and low cost off-blockchain system based on signed receipts. When combined with Bitcoin, OT solves hard problems in crypto finance. Receipts in OT cannot be forged, and a user’s balance cannot be changed without his signature. OT is also able to prove all balances, as well as which instruments are still valid, without storing any history except for the last signed receipt.

Cryptor Trust is working on the CryptorDex, an open decentralized distributed platform for trading securities. Cryptor Trust plan to list their own investment entities on the CryptorDex exchange.

Conclusion

Decentralized exchanges provide global, frictionless value-transfers. Without decentralized exchanges, there will be intermediaries having control over the transfer of value.

Geir Solem

Bitcoin exchanges most overlooked risk

The use of bitcoin and exchanges (fiat to btc/altcoin) has awaken the controversy around topics like hacking, fraud, technical breakdown, to mention some. The events have proven that these areas must be taken care of in detail.

It has become a kind of luxury to discuss which exchanges provide the best service,  are the most user friendly, speedy and competitive on their fees.

BUT, one of the highest risk factors is often forgotten. The external risk attached to  the authorities that define the rules of the game also known as  “compliance”.

Source: Bex.io Blog
Source: Bex.io Blog

Record-breaking fines issued by regulators worldwide, notably in the US and UK, dominated the financial services landscape the last few years, with many Bitcoin exchanges closing for trade owing to non-compliance with regulatory requirements or exorbitant licencing related fees, making inviable to hold the exchange day to day operations. In other words many of these businesses were destroyed, with job positions and money lost.

As a consequence, the shutdown of these exchanges created a lot of stress on customers. This included businesses scrambling for alternatives in order to safeguard their continuing operation, often in need of taking their funds out in cash over a short time period. Then, when trying to deposit the funds cash to another bank, a new problem occurs: Cash Deposits. Large cash transactions are in practise now criminalized at least in the western world. You could easily end up with a lot of cash at home or in your office.

Crypto currency exchanges shouldn’t overlook at this issue, as in some regions complying with the rules and regulations could become a never ending wheel. If the exchange is based in Europe or the US, Canada, or Australia, they could be surprised after they have adopted and complied the best they can.

Bitcoin exchanges use banks, which carry very much of the same risks as the risk related to the authorities.

Our research has identified 10 major well known banks in Europe and the US that we think will fail over the next few years. The users, and that includes the exchanges using these banks are of course at high risk as well.  The debt problem of the western world was never solved.

Where to choose and/or base a bitcoin exchange?

We think some select countries in Asia and Latin America are the best due to the rising social mood trending in these regions over the coming decade. It is hard to believe, but regulations might even be relaxed in these regions the coming years, giving exchanges a brighter future.

Geir Solem
Cryptor Trust Inc.