Every time there’s a mention of crypto trading, what is the first thing that you think about? A flurry of charts and methods that seem incomprehensive? But, what a lot of traders don’t realize is that cryptocurrency trading does not have to be so complicated. There are some very simple ways to trade crypto where you need not brave through technical charts before making a trade. We’re going to talk about one such trade which is P2P crypto trading. Read more
What is P2P trading?
Peer-to-peer (P2P) trading allows buyers and sellers to trade with one another via decentralized exchange markets. This method of trading is quite different from what happens in centralized exchanges as there is reduced vulnerability and no intermediaries to manage your funds in a trade.
Each time you place a trade order through a P2P exchange platform, it is aligned with the most suitable pending orders that other users may have placed. As soon as the right match is met, the trades are instantly carried out with a network fee that is relatively less than what you’d pay at a centralized exchange. Blockchain technology has played an important role in making the P2P trading model the talk of the town.
When crypto trading had just started, there weren’t a lot of options to trade crypto in the market. Thus, people had to buy or sell crypto by meeting fellow traders either in person or via online communities to exchange their digital assets for cash, vouchers, services, or perhaps another crypto. Though cryptocurrency exchanges are now available, some people still prefer P2P methods even though there are several risks involved like scams, violence, and possible thefts. In a bid to make P2P trades secure, different online platforms created better ways to facilitate such deals.
How does Peer-to-Peer trading work?
P2P trading does not involve a third party or a central authority to oversee the trades. All trades are entirely decentralized. Additionally, the system is structured on peer-to-peer protocols where a select set of users may interact with one another to carry out the trades.
Even though there are a number of P2P platforms today, let us remember that they’re the only channel where traders connect with one another. Rather than operating with one central server, there are a number of servers that run parallelly. The entire process is facilitated with the help of smart contracts.
A smart contract refers to a set of instructions where a trade requires certain criterias to be met. When these conditions fall in place, the trades are executed automatically. In P2P trading, a smart contract is executed when a buyer and a seller mutually agree to transfer funds to one another. The role of the contract here is to release funds to the seller and transfer the token’s ownership to the buyer. Typically, in the world of finance, such transactions are conducted by banks and other financial bodies.
There is no role for a third party in P2P trading as all parties have equal rights. Rather, the system depends on a consensus algorithm to validate the transactions so there is no double-spending. Each participant also has a ledger copy which holds all the information regarding transactions carried out by other traders in the network.
In order to cut down the risk of being duped, there is a rating system on most P2P platforms which helps traders identify the trustworthy peers in the network. Thus, before carrying out a trade, any trader’s rating will tell you how genuine they are.
P2P Trading Strategies
Here are three leading P2P trading strategies:
- Arbitrage Trading
Arbitrage trading can be very advantageous if done right. You buy a cryptocurrency at a low rate on one exchange and sell it on another for a higher value. Several P2P traders make use of this trading strategy and earn money by cashing on the price differences driven by market volatility and liquidity as well as regional differences.
- Buying and Selling Ads
There are some marketplaces where you could buy and sell ads. You may choose to decide on a price that is relatively low so you connect with more customers or, you could look at making more money with a higher rate. This decision would depend on your business goals.
- High-Demand Payment Methods
In general, people may have to pay more for a unique payment method. For instance, the option of fiat is not very common on P2P platforms. Thus, if a trader wants to carry out transactions in their local fiat currency, they have to incur a higher cost in case the currency is not used so often.
Pros and Cons of P2P Crypto Trading
Here are some Pros of P2P crypto trading
- Unlimited Access To the Global Market
P2P crypto trading allows you to access a number of buyers and sellers on the exchange. You can carry out trades with almost anyone around the world. Additionally, if there are restrictions on crypto trading in your country, it is possible to trade via a P2P platform since they’re unregulated.
- Multiple Payment Methods
You will come across several different payment methods on P2P platforms. Unlike centralized exchanges, there is no restriction on the method you choose.
- Low Trading Fees
P2P platforms typically have almost negligible fees. You have the liberty to carry out transactions directly with another user.
- Secure Transactions
P2P platforms let you hold funds until an agreed-upon term is complete. The security feature is encrypted and also uses two-factor authentication to start safe transactions.
Here are some downsides of P2P trading:
- Low Liquidity
P2P trading platforms that aren’t very well known could face low liquidity often. The negative aspect of trading in a low liquidity market is that trades take more time to complete and also have an impact on currency prices. This can be avoided by working only on renowned P2P exchanges.
- Slow Trading Speed
P2P trading can be conducted faster if traders meet their terms as quickly as possible. In case even one of the parties fails to do so in time, the entire trade is delayed.
