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Crypto in plain English

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April 25, 2022

How does crypto trading work and who determines prices?

Welcome to the cryptohunt jam where we spend one minute a day to explain crypto. In plain english.

Today, we’ll talk about the primary mechanism that drives pricing in just about any market, including stocks and crypto: The “auction” You’d be surprised, but it actually originated on real markets thousands of years ago.

So-called market makers, like the New York Stock Exchange or crypto exchanges like Binance and Coinbase, bring together supply and demand – meaning those who want to sell and those who want to buy. 

When you click the buy button on your brokerage or crypto account, you submit what is called an order. It states what you want to buy, how much of it, and at what price. On the other side are sellers - they do the same - what they sell, how much, and what price.

The exchange knows all open orders and matches the two of you, but only when your buy price works out for the other seller. Say you are willing to buy a coin for up to $5 per coin, and a seller submits a wish to sell for $4.99. The exchange will then make the trade between you happen at $4.99 and both parties are happy. That becomes the new official price until a new trade gets made.

And because for popular crypto, there may be many orders active at any given time, making trades happen multiple times a second, which leads to the price changing just as quickly.

There you have it – this is how crypto trading usually works and how prices get set. And next time, we talk about the cold-start problem: How cryptos that are not yet traded on exchanges gain traction and how you can find them before they blow up.

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