How To Swap Cryptocurrency?
A cryptocurrency swap is the exchange of one coin or token for another. Sounds simple, but in reality, it can get clunky as there are more than 2,000 different types of cryptos. Hence, it leaves people scratching their heads for answers to the question – of how to swap cryptocurrency.
Since the market is ever-evolving and the fastest cryptocurrencies keep on adding into the mix, thus swapping one token for another becomes challenging. For investors, the crypto swap could shape their financial paths. Therefore knowing how to swap cryptocurrency can make a big difference.
New traders often do not know how to swap two coins from a collection of thousands; they usually involve first money for swapping. However, at times, it is better to directly swap one crypto for another, for instance swapping Ethereum for Bitcoin.
Swapping Cryptocurrencies
There are three ways to swap cryptocurrencies, and a top-tech-savvy user can use either. The following are the main options available in the market for swapping.
- Centralized Exchanges
- Decentralized Exchanges
- Over-the-Counter Exchanges
Let us explore each one of these.
- Centralized Exchanges
Many centralized exchanges are meeting the demands of cryptocurrency enthusiasts throughout market development. Generally, these compete with each other by offering multiple trading pairs. In addition, these platforms allow you to swap cryptocurrencies at nominal to the free-of-charge trading facility.
However, centralized exchanges are mostly run by bigger players, while the usual or one-time traders are left reeling for profits. On the other hand, seasoned investors have control of crypto swapping and make better profits.
A few key challenges investors face while swapping with centralized exchanges are listed below.
Complicated Interface
There is a jungle of graphs, orders, and indicators which leaves new users in the darkness, thus they are left behind in comprehending the information.
Fees
Generally, CEX charges multiple types of fees. In addition to commission fees, you are required to pay transaction fees and registration charges. Not only this, but you may also share a part of your profit with the exchange. Unfair, as there are many opaque scenarios left in the contract.
KYC Procedure
The verification process on some exchanges is difficult to fulfill. A KYC process may take days to weeks to get you onboard for swapping purposes.
Price Fluctuations
There are reported cases where users have to change their decision as price changes are so rapid that you may have to change it during performing a transaction. In short, you cannot lock the price.
- Decentralized Exchanges
DEX has managed to outperform centralized exchanges in a short period. Since these are easy to operate and do not require you to go through the KYC process, thus you can swap cryptocurrencies in simple steps.
However, DEX, too, has its limitations which are mentioned below.
Limited Options
Generally, all those projects which fail to land contracts with major CEX end up with DEXs. Therefore, the variety of swappable coins is very short. So, there are chances that you may not get your desired cryptocurrency.
Liquidity Issues
Swapping large amounts of cryptocurrencies carries a big risk since DEXs are not very liquid. So, if you are planning a major swap, try not to use a decentralized exchange.
- Over-the-Counter Exchanges (OTCs)
OTCs are the easiest way to swap cryptocurrencies. Typically, these are integrated with centralized exchanges via an API, but you do not have to open an account or go through a KYC process to make a transaction. All you need is to visit the office and swap your deal.
However, here are a few drawbacks of OTC swapping.
High Rate
Since OTCs add their fees on each transaction, thus these are expensive. They may also require you to pay fiat money for crypto swapping.
Opacity
Users may fall victim to manipulation as they never
Swapping vs. Trading
The mechanics of crypto swapping and trading are the same. However, the outcome of both is significantly different.
Crypto trading is executing a transaction from the prescribed order book. You can only transact crypto from preset trading pairs of coins from a crypto exchange. Usually, the best crypto exchanges offer more pair options.
Contrarily, swapping is more flexible. You can easily select different types of cryptocurrencies to make a pair, even if it is not live on the spot market.
Here are the key advantages and disadvantages of crypto swapping.
Pros
- Swapping eliminates multiple transaction fees.
- It applies to any level of the trading volume.
- Vastly diversify your portfolio.
- It is a better and more immediate solution.
- Swapping is possible with fiat money as well.
- Swap any cryptocurrency of your liking, depending on the crypto exchange’s pairing options.
Cons
- Riskier if an unknown cryptocurrency involves.
- Swapping has nothing to do with profits.
know the exchange rate. It happens because OTCs use centralized exchanges to complete the process.
Frequently Asked Questions
How can I swap one crypto for another?
If you have an exchange account, follow the steps below to make a swap.
- Login your account
- Select the “Swap” option
- Confirm the “From/To” network and coins to view exchange rates
- Enter either the “To” or “From” token amount
- Tap “Swap”
Is it better to sell or swap cryptocurrency?
It depends on the nature of the transaction you are going to make. Usually, a swap is done to acquire another cryptocurrency, while selling is made to make a profit. However, you can even swap first money for cryptocurrency.
Which exchanges offer crypto-swapping facilities?
The following popular exchanges have crypto-swapping options.
- Kraken
- Coinbase
- Gemini
- Crypto.com
What is the difference between trade and swap?
As the name suggests, a swap is exchanging one crypto for another. However, trade is to sell or buy a new cryptocurrency.
Parting Thoughts
Learning how to swap cryptocurrency is made easy through this guide. In addition, we have discussed three main ways to swap cryptocurrencies. You can either use a centralized exchange, a decentralized exchange or make the counter swap.
Furthermore, each swapping option has its limitations. However, many investors have started using swapping as a main tool to diversify their investment portfolio.
However, swapping is not a straightforward investment strategy. It only works if it is well backed by an expert’s opinions and a thorough market study. Therefore, we suggest going through market dynamics in detail to avoid potential swapping losses.
We hope you enjoyed reading this article. Please share your feedback and let us know what your last swap was.