Chapter 8:

Next: Withdrawing from Centralized Exchanges

This section will teach us much of the trading terminology we need to get started. The difference between market and limit orders, base and quote currencies, and more. These tutorials are intended to show how to learn your way around the trading interface of almost any exchange. The instructions are designed to be generic and interpreted, not specific. First, let’s look at some trading basics.

In some tax jurisdictions, the simple act of selling a token is a taxable event. Even if you lose money or make just a few cents profit, you might be required to report your activity. Tax advice is beyond the scope of this book. The reader should research the implications for tax in their location.

Contents

Trading basics

The first bit of terminology we want to familiarize ourselves with is base and quote currencies. When we look at a chart or a list of prices on an exchange, we see the price data presented in the following format: Base currency/Quote currency. As a specific example, the chart of Bitcoin priced in US dollars is written like this BTC/USD. Different platforms will present this information slightly differently, but the context is usually clear. For example, the Trading View app we saw in Chapter 2 omits the forward slash between the two prices, and Bitcoin with the US dollar is written like this: BTCUSD. Furthermore, some exchanges know that the base/quote format can be unclear to beginners and will avoid it altogether. As an example, Coinbase shows the Bitcoin price in British pounds like this:

Coinbase BTC price in GBP

Understanding the base/quote format when viewing crypto priced in your native currency is usually straightforward. Still, seeing the price of crypto in another crypto (most often Bitcoin) can be a little jarring. For example, here is the price of Ether (ETH) in BTC at the time of writing:

Ethereum price in BTC

To be clear, ETH is the base currency, and Bitcoin is the quote currency. This means that 1 ETH costs some amount of BTC. For example, the image above shows that 1 ETH costs 0.072688 of 1 BTC. The dollar value of ETH is also shown for reference below the BTC value.

Now we can move on to understanding more trading terms that will prepare us to use a typical trading user interface. There are many options for buying and selling crypto. We can instantly buy or sell some crypto, as we did with Bitcoin in Chapter 4. We can place an order to buy or sell some crypto if that crypto reaches a specific price, and there are even more advanced options too. We can do almost everything we need with two types of trade. These are market and limit orders. In Chapter 10 we will also see how to auto-buy, DCA, with bots.

Market and Limit orders

When we place a market order, we say to the exchange, “I am happy with the price of the crypto. I just want to buy/sell some crypto, now.” When we place a limit order, we say to the exchange, “I want to buy/sell some crypto, but only if it reaches this specified price.” In either case, depending on the UI of the exchange, we might be allowed to state the amount of crypto to buy/sell in either the base or the quote currency. Most exchanges will give you both options.

A point worth covering, if you get to buying and selling regularly, is that market orders incur higher fees than limit orders. If you buy ten dollars, even a thousand dollars of BTC, on a good value exchange, the difference is minimal, but if you buy and sell regularly, the difference will add up.

The reason for the difference is that exchanges prefer you to use limit orders. Limit orders are encouraged because by adding your order to all the other orders, collectively known as the order book, you are adding to the overall liquidity and usability of the exchange. Using a market order, you take away from the liquidity. Limit orders are market makers, and market orders are a type of market taker, often called maker and taker orders.

As an example of the price difference between maker and taker orders, on Binance, at the time of writing, for a VIP 1 level user using the Binance BNB token to pay fees, maker fees are 0.0675%, and taker fees are 0.0750%. Not worth getting stressed about right now but a detail worth knowing.

The next term we want to understand is the funding options for a trade. You can straightforwardly buy crypto like we did with Bitcoin, just like when you buy a coffee. You give the seller the money – they give you the crypto or the coffee. This straightforward method of trading is called spot.

In crypto trading, there are other ways to trade, which can be indicated with several different terms. Glancing across half a dozen exchanges in my web browser, these terms include Margin, Leverage, Isolated margin, Futures, Cross 3x, Cross 10x, Options, Grid, and maybe some more I haven’t remembered. For now, at least, we always want to use spot.

The spot funding type means paying money and getting crypto -simple, like buying a coffee. All the other funding types are more complex and involve contracts, loans, or ongoing automation. Using types different than spot can easily wipe out all your funds at the click of a button – until you learn how they work.

To summarize – for now, use spot. We will first look at the spot limit order type. So we can guess that would mean we will straightforwardly buy crypto (spot) when a specific price is reached (limit).

Spot limit orders

Let’s look at a generic trading UI to handle spot-limit orders. The following image is the UI for buying and selling British pounds (GBP) and Bitcoin (BTC).

Edited Binance UI

I created the previous image by taking a screenshot on the Binance website and cropping and deleting the parts we are not ready to discuss.

In the image, we can see in the top left that the Spot tab is selected. In the fuller UI on most exchanges, you would also have tabs for the advanced options (Leverage, Margin, Cross, Bots, etc.) we will avoid for now. Directly below the Spot tab, you can see the two options for the trade types we will discuss, Limit and Market. Again, in the fuller UI on most exchanges, you would have more advanced options (stop-limit, trailing-stop, OCO, and perhaps more) that we will ignore for now. On this UI, the Limit option is selected. This is important to remember as we proceed because when the Market tab is selected, the layout of the UI will change, and the consequences of clicking the buy or sell buttons will change.

Notice that the rest of the UI is split into two columns. One column with several input and data fields followed by a Buy BTC button, and the other with the same input and data fields followed by a Sell BTC button.

Let’s look at the options on the Buy BTC side of the UI. Firstly, at the top, we can see that there is 428.59653440 GBP available, as shown more clearly below.

Available GBP

Immediately below, we can see the Price and Amount input fields. For the limit type of order, both these fields must be completed. The limit order type requires you to state the price you want to purchase BTC at. You must also be aware of which quote currency you use, in this case, GBP. This is made clear in the following image.

Price and quote currency

In the next input field, we must enter how much BTC we want to purchase. The total value of the order is determined by the price you want to pay (in GBP) multiplied by the amount you want to buy (in BTC). When you enter the price and amount, click the Buy BTC button. All trades are made once and when your specified price is reached or beaten.

By beaten, when purchasing, we mean lower. If you think about it, if you are happy to buy BTC at 1000 GBP, it is a safe assumption that you will be glad to buy it at 999 GBP – this is how a limit buy order works.

This next image shows what this generic UI might look like if we wanted to buy a quarter of 1 BTC (0.25) for 1000 GBP per Bitcoin.

Buy 0.25 BTC at 1000 GBP per 1 BTC

One more common feature of a trading UI like this is the slider bar shown again for clarity next:

% of the fund’s slider bar

This is a way of selecting the amount of BTC you want to buy (at the chosen price) instead of typing a value in the Amount field. It is helpful because it will allow you to slide the bar to the right to see how much your balance of GBP will allow you to buy without working it out in your head. Or, say you have some GBP currency and know you want to spend half or a quarter; you slide the bar halfway or a quarter, respectively.

Note that with a limit buy order, if the price on the exchange doesn’t go low enough to reach your specified price, the order will never be made, and you will not buy any BTC. Limit-buy orders are an excellent way to hunt for a bargain. Perhaps you know you want to spend 10 dollars on BTC, but you want to wait for a better price but don’t want to keep checking the charts; set a limit order for the price you are prepared to pay (and can reasonably expect to achieve) and go and enjoy life, the exchange will buy your BTC if and when the target price is reached.

This is an important point to consider. I do look at the charts all the time, but only because I find them interesting not because I am fretting about whether it’s going up or down and I whether I should be buying or selling. I constantly see commentators on social media saying I am doing it all wrong and I see some saying I have got it all right. Neither of them really knows. I hold a certain amount of certain cryptos, I automatically repeat buy (see Chapter 10) a certain amount of certain cryptos. I know the exact worst-case scenario; I have hopeful ideas about the best case and when I might sell some of my crypto and I am at peace with my position. I am aware it is impossible to buy the exact bottom and sell the exact top; I am over-worrying about it. Sure, life gives me loads to worry about, sure I’ll be disappointed if my crypto goes to zero, but don’t make crypto something that stops you from sleeping. The preceding chapters should have taught you about Bitcoin, these coming chapters tell you some accumulation options. Do it, don’t do it, do a little, do a lot, but be happy and relaxed about whatever you choose. Take some time to come to a decision. It’s OK to sit on the sidelines. Know the worst and best cases and the time frames right for you. If like me, crypto blows your mind, then dive in and learn more about it but don’t let crypto tie you down. Come to a decision then go and spend time with friends and family.

Let’s discuss the other column of the UI, the one with the Sell BTC button. The Avbl field now states the amount of BTC available in the account, in this case, 0.01130299 or approximately 1.1% of 1 bitcoin.

Next, we have the same Price and Amount fields. Even though we are selling BTC, we still need to enter the price we want to sell in GBP and the amount we want to sell in BTC. Again, the slider bar will allow us to quickly select all or a fraction of our owned BTC without reading the somewhat awkward fraction and retyping it or calculating a fraction of it.

When you have chosen a price in GBP and an amount in BTC to sell, you would click the Sell BTC button. If the price reaches the price specified, the exchange will sell the BTC and credit you with, in this example, GBP. Note that the limit order type waits for the specified target price or higher when selling. If you think about it this is common sense. It is a reasonable assumption that if you are happy to sell your BTC when the price equals 1100 GBP, you will also be glad to sell for 1101 GBP.

Spot market orders

Let’s look at a generic market trading UI setup to handle spot market orders. Notice, as before, we are on the Spot tab, and I have hidden the other options to simplify the discussion.

Edited Binance UI market order

The previous image shows a typical market order UI. As with the limit order UI we discussed previously, the image is an edited view from the Binance website. Notice that I have slightly different values of GBP and BTC as denoted by the Avbl values in both the buy and sell columns. This is nothing to do with the UI; I just bought a bit of BTC since I did the screenshot of the previous section.

Also, notice that the market UI is more straightforward than the limit order UI. The first difference is that there is no Amount input box in the Buy BTC column, and the Price input field is pre-filled with the value Market. To buy BTC using GBP in this UI, you only need to enter the amount of GBP you want to spend. The price that you pay will be predetermined by the market. In normal market conditions, this price will be whatever the current price on the exchange happens to be. The amount will be automatically calculated based on the current price and the GBP you have decided to spend.

Many exchanges, Binance included, will allow you to make helpful modifications to the UI. For example, notice the small downwards pointing arrow next to the word Total in the input box where you enter how much GBP you want to spend. This indicates a customization feature. In this case, you can switch the Total input field to an Amount input field. This drop-down option is shown in action below.

Switch between the total and the amount of input.

If you make the switch, you will enter the amount of BTC you wish to purchase, at the market price rather than the amount of GBP you want to spend, at the market price. In addition, the slider bar can select the amount of BTC/GBP you wish to buy/spend.

In the Sell BTC column, notice that the price, as expected, is set to Market, and the only input is the Amount input. Here you can enter the amount of BTC you wish to sell and receive GBP for. Notice the downwards pointing arrow in the Amount input field that would allow you to switch the field to a Total field and enter the GBP value of the BTC you wish to sell.

The Total field defaults on the Buy BTC side, and the Amount field defaults on the Sell BTC side, probably because that combination to be most popular on this exchange. It will vary from one exchange to another. If you take your time, check your input values, and check any output values before you buy or sell, most exchange UIs are intuitive.

Getting real with the UI

As there are so many and varied UIs on the different exchanges, not to mention that the UI we have just explored is usually nested amongst dozens (literally) of other features, graphs, and data, it will be helpful to glance at a few trading screens from various exchanges to highlight some of the variety. However, you can be confident that although there is a wide variety, we have learned enough to disseminate the different parts, select the Spot funding option, choose Limit or Market trade tab, and buy what you want when you want at the price you want.

It is worth exploring the UI of multiple exchanges while reading the following few pages; it might decide which exchange you sign up with.

If you go to http://binance.com and click the Markets link, you will see a page like this next image. If you go to http://Kucoin.com and click Markets, you will see a near-identical list of cryptos. Or you could go to http://Kraken.com and click on Prices or http://coinbase.com and click on Explore. Do you get the idea, visit any exchange, and a list of the top cryptos will be close at hand.

Binance top cryptos

In the first column, we have the logo, ticker, and name of the crypto; in the second, we have the price in US dollars; in the third, we have the change in price over the last 24 hours. The ticker is just the established abbreviation for a token. BTC for bitcoin, ETH for Ethereum, and thousands more besides.

As an aside, the native token on the Ethereum blockchain is called Ether with the ticker ETH. But, myself included, it is a common mistake to use Ethereum for the token name. So I will leave the error above for explanation purposes and do my best to be more correct for the rest of the book.

If you click on the Trade link on the right-hand side next to the crypto you are interested in, you will open the trading screen, shown in the following image:

Binance trading screen for BTC/BUSD

In the top left corner of the screen, you can see the current trading pair and some other statistics about the trading pair.

Current trading pair and stats

The preceding image shows the trading screen for the bitcoin (BTC) and the Binance USD (BUSD) stablecoin. Notice in the image that we can see that bitcoin is worth 19,209.95 BUSD and has traded more than eighty-four thousand bitcoins in the previous 24 hours.

We can consider BUSD the same thing as US dollars for trading purposes. The BUSD stablecoin is a crypto token backed 1:1 with real US dollars or equivalent financial products, often US government debt known as treasuries. One BUSD is almost always within a fraction of 1 cent, the same price as the US dollar.

On 18^th February 2023, the SEC, a branch of the US government, has announced that it believes the BUSD token is an illegal security. As a result, its issuer, Paxos, and Binance are steadily withdrawing the token from use. As a result, you will likely need to use USDC, USDT, or something else when you read this. However, in the context of this tutorial, BUSD is fine for this discussion.

If you are a US citizen, you might be aware that the US government guarantees the dollars – up to a maximum amount- that you have in your bank account. However, no such guarantee exists for BUSD or even regular dollars when held on an exchange. Therefore, it is a necessary discipline to leave as little crypto or fiat as possible on any exchange and to carefully consider which, how much, if any, stablecoins you keep your funds in.

However, as the BUSD token is pegged (fixed) to the US dollar, you can hold funds in BUSD to avoid the volatility of holding regular crypto tokens. Note that it is possible that a stablecoin can lose its peg, although, to date, BUSD, and USDT have held their peg to the US dollar quite well. USDC, once considered the safest stablecoin, temporarily lost its peg during the banking crisis in the US in March 2023. Note that the reason it lost its peg was because it is backed with US debt whose long-term value came temporarily into question, not because of a crypto problem.

You could trade for Bitcoin from most fiat currencies, but some lesser-known cryptos will require you to use a stablecoin. For example, Binance’s preferred stablecoin is BUSD. On Kucoin, the most used stablecoin is USDT; on Coinbase, Kraken, and Crypto.com, it is USDC. Most exchanges, however, will provide trading pairs for several different stablecoins and most allow trading from fiat currencies directly.

The stablecoin UST on the TERRA network differed from BUSD and USDC; it got its value from an algorithm. Although it was a much-hyped stablecoin project in early 2021, it is currently worth nothing! Investors lost billions of dollars on UST, which serves as a warning. Research any crypto you intend to hold for a long time, even stablecoins. My approach is that if I am only holding it for one trade to obtain something else, I am not too worried.

A list of buy and sell orders can be seen in the left-hand column of the trading screen. We can think of all these as limit orders. The red sell orders go down in price as they move down the page, and the green buy orders move up in price as they are displayed up the page. Where they meet in the middle is where the prices of buyers and sellers converge, and trades are made. This is shown in the following image:

Limit order prices converge.

In the center at the top of the screen, we can see the price chart as shown next:

BTC/BUSD price chart

This chart has many customization features, similar to TradingView which we saw in Chapter 2.

On the top right are links to other commonly traded pairs on Binance. Also note the search box where you can type the ticker symbol for your favorite crypto, stablecoin, or fiat option and find the pair you are looking for. For example, this is shown in the following image.

Other trading pairs

Below the links to other trading pairs is a list of all the live trades. Look at this next image to see this in action.

Trades taking place

Observing is interesting because you will often see some quite substantial trades. So watch closely; you will often see a whole BTC or even double-figure amounts of BTC being traded.

Next, in the center bottom of the screen, you will see something that should look familiar. It is the trading UI, but with all the options we previously hid being shown. Here it is in the following image:

Full trading UI

Notice that as well as Spot, there is a Cross 3x, Isolated 10x, Transfer, Auto-Invest, and more options. In addition, on the Spot tab, notice that as well as Market and Limit options, there is a Stop-Limit option with a downwards pointing arrow indicating even more spot trading options.

Hopefully, as we have explored the trading UI in detail, even if it is modified sometime in the future, you can easily focus on the options we will use in this chapter: The spot | market and spot | limit orders.

One more thing to note is that you must scroll down a little at the bottom of the screen. Then, you can see all your open orders – if any. These are limit orders you have placed waiting for the price to be suitable to fill.

I have yet to cover all features and customization options, but this should be enough to move on. Although, as suggested earlier, it is worth exploring the UI of multiple different exchanges, it might be a deciding factor in which exchange you sign up.

Now, look at the Kucoin UI in the image by selecting a trading pair on the Kucoin platform.

Kucoin UI

You see that on Kucoin, the trading UI is in the bottom right, but similar features are present, although the page is laid out differently.

Now, look at the Kraken UI shown next.

Kraken Pro UI

The USDC/EUR pair is shown, and the main trading UI is in the top-left. Note that this is the newer Kraken Pro UI, and by default, Kraken provides a much simpler UI but with fewer features, as shown next:

Simple Kraken UI

Hopefully, it is clear that although the layouts, features, and trading options vary significantly across the exchanges, we should be able to execute basic spot, limit, and market orders on whichever exchange(s) we decide to use. Also, note that if you trade using a phone or tablet, the layout will be different again, but you should easily be able to identify the relevant parts.

Discounted trading fees with exchange tokens

On some exchanges, you can get reduced trading fees by holding the crypto token associated with the exchange. Note that exchange tokens are volatile, just like all other crypto tokens. If you make all your trades on one exchange, consider holding a small amount of the exchange token. However, the discount from holding the token doesn’t justify the price fluctuation risk unless you frequently trade large amounts. It might turn out that after investigation, you consider a particular exchange token a worthwhile investment on its own merits, which is a win-win situation.

Two of the best-known exchange tokens are BNB which is the Binance token. BNB gets you a small trading discount on the Binance platform and is also the token used to interact with the BNB Smart Chain blockchain which is discussed in my other book. The Kucoin token is the KCS token. KCS gets you a daily share of the trading fees on Kucoin, but again, unless you are optimistic about Kucoin specifically, the share in the fees doesn’t match the potential downside in the token’s price.

In short, only buy the exchange tokens if you a satisfied with the investment case for the token excluding the modest financial benefits when trading.

Summary

We now understand the user interfaces, and terminology, and how to explore the differences between centralized exchanges. I would suggest at this point, you are ready to make a purchase. You will obviously need to pick an exchange, do KYC to identify yourself, and then pick a small amount of money you are comfortable with to make your first trade. In the next chapter, we will see how to withdraw our crypto and self-custody it. It is a reasonable idea, should you wish, to learn about withdrawing your crypto, so you are fully prepared before you make a trade. I leave such decisions to the reader.

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