Cryptocurrency Converter

How Cryptocurrency Exchanges Work

Cryptocurrency exchanges are digital marketplaces where buyers and sellers come together to trade digital assets. When you convert one cryptocurrency to another, the exchange matches your order with a counterparty willing to make the opposite trade. Centralized exchanges (CEXs) like Binance, Coinbase, and Kraken operate order books that list all outstanding buy and sell orders, matching them based on price and time priority. Decentralized exchanges (DEXs) like Uniswap and SushiSwap use automated market makers (AMMs) and liquidity pools instead of traditional order books, allowing users to trade directly from their wallets without an intermediary.

Crypto-to-crypto conversions typically work through a common intermediary, usually USD, USDT, or BTC. When you convert SOL to ADA, for example, the exchange may first sell your SOL for USD and then use that USD to buy ADA. The exchange rate you receive depends on the current market prices of both assets. This is why having accurate, up-to-date pricing data is essential for getting a fair conversion rate.

Market Cap, Trading Pairs, and Liquidity

Market capitalization (market cap) is calculated by multiplying the current price of a cryptocurrency by its total circulating supply. It serves as a rough indicator of a project's size and relative importance in the crypto ecosystem. Bitcoin, with the largest market cap, is considered the most established cryptocurrency, while smaller-cap coins (often called altcoins) tend to carry higher risk and higher potential reward. Market cap helps investors compare the relative size of different cryptocurrencies, but it should not be the sole factor in investment decisions since it does not account for factors like token distribution, locked supply, or fundamental value.

Trading pairs define which two assets can be directly exchanged on a given platform. Common base pairs include BTC, ETH, USDT, and USD. The availability and depth of trading pairs affect how easily you can convert between specific cryptocurrencies. Liquidity refers to how quickly an asset can be bought or sold without causing a significant price movement. High liquidity means tight bid-ask spreads and minimal slippage, while low liquidity can result in substantial price impact, especially for larger trades. Always check the 24-hour trading volume of a pair before executing a significant conversion.

Understanding Slippage

Slippage occurs when the actual execution price of a trade differs from the expected price at the time you placed the order. In fast-moving crypto markets, prices can change in milliseconds, meaning the rate you see on screen may not be the rate you ultimately receive. Slippage is more pronounced in low-liquidity markets, during periods of high volatility, and for larger order sizes. Most exchanges allow you to set a slippage tolerance, which defines the maximum acceptable deviation from your expected price before the trade is canceled.