One of the most important choices you'll have to make when you start trading cryptocurrencies is whether to use a Centralised Exchange (CEX) or a Decentralised Exchange (DEX). It's important to know when to use each type of exchange because they all have their own pros and cons. We will look at all the pros and cons and give you advice on how to choose wisely.
🔍 What do CEXs and DEXs mean?
CEX (Centralised Exchange): A centralised exchange is run by a company that acts as a middleman between buyers and sellers. Some of the most well-known ones are Binance, Coinbase, and Kraken.
People can trade directly with each other on the blockchain using smart contracts and a decentralised exchange (DEX). Some examples are PancakeSwap, SushiSwap, and Uniswap.
Pros and cons of CEXs and DEXs: Pros of Centralised Exchanges (CEXs)
Easy to use interface:
It is a great alternative for beginners because it has easy-to-use interfaces and features like customer service, trading training, and deposit options.
A lot of liquidity:
Every day, prominent CEXs handle billions of dollars to make sure that orders are filled quickly and with as little slippage as possible.
Adding fiat:
Makes it easier to deposit and withdraw fiat money, which makes it easier to get into the cryptocurrency markets.
More advanced tools:
Includes stop-loss orders, futures, margin trading, and pledging.
Problems:
Control from one place:
Because they hold your money, the exchange's wallets are easy targets for hackers.
What KYC needs:
Users must prove who they are, which implies they can't stay anonymous.
Rules can be dangerous:
The government makes rules for CEXs, which could lead to accounts being frozen or limited.
Benefits of Decentralised Exchanges (DEXs)
You have full control over your money:
Users don't have to depend on anybody else because they can trade directly from their wallets.
Privacy:
You don't have to give out personal information to trade because there is no KYC.
Getting to New Tokens:
DEXs are good for early adopters since they tend to list tokens before CEXs do.
Censorship is a lot harder:
Uses smart contracts to make sure that no one can limit or freeze access.
Disadvantages
Hard to Learn:
People who are new to wallets like MetaMask may find the interface and features scary.
Less liquidity:
When trading volumes are low, slippage may be higher, especially for large transactions.
Costs of fuel:
Due to their high network expenses, trading on some blockchains, like Ethereum, may be too expensive.
Some of the risks that come with smart contracts are:
Smart contracts could lose money if they have bugs or security holes.
When to Use a CEX and When to Use a DEX
When to Choose a CEX
You need a platform that is easy to use because you are just starting off.
You want to put real money in or take it out.
Because you trade a lot, you need a lot of liquidity.
You like margin trading, futures, or pledging the most.
Choose a DEX when
You care about your privacy and don't want to provide any personal information.
You are okay with using cryptocurrency wallets and want to be in charge of your money.
You want to trade tokens that are either new or not very well known.
You live in a place that CEXs can't get to.
Things to Think About When Choosing Between a CEX and a DEX
Safety:
A DEX is the best choice if you want to avoid dangers from third parties. But it's very important to follow safe wallet rules to keep your money safe.
Easy to use:
CEXs are usually easier for beginners to use, but DEXs require knowledge of blockchain networks, crypto wallets, and gas fees.
If you trade a lot of BTC or ETH, a CEX is likely to have better liquidity. If there isn't enough liquidity on a DEX, slippage may get worse.
Costs:
CEXs usually charge trading fees (like 0.1–0.2%), while DEXs charge gas fees, which can be very different from one blockchain to the next.
Following the rules:
If you live in a country with strict rules, a DEX may be your only choice.
Availability of Tokens:
Decentralised exchanges (DEXs) list a lot of new or not very well-known tokens at first. These tokens only move to central exchanges (CEXs) after they become famous.
Some tips for people who are new to DEX
Using a DEX for the first time can be hard, but it's not too hard if you plan ahead.
Get a safe wallet:
Use wallets like Trust Wallet, MetaMask, or Ledger to store and carry out transactions.
Know how much petrol costs:
Look at the blockchain you are currently using (such Binance Smart Chain or Ethereum) and come up with ways to lower your transit costs.
Start with a small amount:
Use the site for a modest purchase to become used to how it works.
Check Smart Contracts Again:
To avoid scams, make sure you are trading on the official DEX and using validated token contracts.
Make a copy of your wallet:
Don't tell anyone your seed phrase, and make sure to keep it safe.
Stay Up to Date:
To remain up to current on news and developments, follow the DEX's official accounts on Twitter, Telegram, and Discord.
Last Thoughts: Finding the Right Balance
Both CEXs and DEXs are very important parts of the crypto economy. The choice of which option to choose depends on what you need:
CEXs are a great choice for new traders because they provide a lot of liquidity and advanced trading tools.
Decentralised exchanges (DEXs) give you access to decentralised opportunities, privacy, and control.
To use them correctly, you need to know what each one is good at and what it's not good at. A lot of traders utilise both a CEX and a DEX. They use the CEX for liquidity and ease of use, and the DEX for privacy or to get unique tokens.
No matter what you choose, make safety your top priority and do your homework before completing any transactions. There are many chances in the world of cryptocurrencies, but there are also big risks for people who aren't ready.
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