Seconds to understand Token Trading
What is Spot?
Spot trading is the exchange of a cryptocurrency against another. On the spot trading market, one can use a cryptocurrency as quote currency to purchase another cryptocurrency. Order matching priority is granted to orders at the best prices posted at earlier time.
What is Token Trading?
Tokens like Bitcoin and Litecoin are usually priced in USD. We call this a currency pair, which a digital asset’s value is determined by its comparison to another currency. For example, the BTC/USD pair represents how much USD is required to buy one BTC, or how much USD will be received for selling one BTC.
The same applies for pricing LTC with BTC, which is the amount of BTC a LTC worth. Token-to-token trading refers to exchanging a digital asset with another digital asset. If we price LTC with BTC, a LTC/BTC pair emerges. It represents how many BTC is required to buy one LTC, or how many BTC will be received for selling one LTC. For example: according to OKX’ index on 18 Aug, 1LTC=0.0099BTC.
There are currently 4 markets available in OKX’ Token Trading: BTC, ETH, USDT & BCH markets.
What are the differences between Token Trading and traditional fiat-to-token trading?
Traditional fiat-to-token trading is the exchange between digital assets and fiat currency (e.g. USD). If you buy BTC with USD, and BTC rises afterwards, you can sell it back for more USD. If it drops, you can sell for less. For example, you buy 0.5BTC with 5,000 USD when 1BTC = 10,000USD, and it rises to 20,000USD afterwards. You may then sell your 0.5BTC for 10,000 USD.
While Tokens Trading is pretty much the same, except fiat (USD) is replaced by token (BTC). For example, you buy 10ETH with 1BTC when 1ETH=0.1BTC, and it rises to 0.2BTC afterwards. You may then sell your 10ETH for 2BTC.
Benefits of Token Trading
In traditional digital asset exchange, only fiat-to-token trading is available. If I want to buy ETH with BTC, I will have to sell BTC (fee applies) first and then buy ETH (fee applies). Service fee will be doubled in the process.With Token Trading, we can buy ETH with BTC directly, reducing both time and cost.
- Lower cost of exchanging cryptocurrencies
- Arbitrage opportunities
- Higher anonymity
- Easier transfer and circulation of cryptocurrencies
How are the prices in Token Trading determined?
Like traditional fiat-to-token trading, the market prices of Token Trading are determined by supply and demand. When there is a buying pressure, the price rises. When there is a selling pressure, the price drops. For example, if there are more people willing to exchange BTC to LTC in the market, there will be more demand than supply of LTC. Therefore, LTC/BTC price will rise, meaning that buying a LTC would require more BTC.