The Importance of Cryptocurrency Diversification: Why Having Two Crypto Exchanges Matters

0
377
The Importance of Cryptocurrency Diversification: Why Having Two Crypto Exchanges Matters
Image Credit; Unsplash

While trading or investing in cryptocurrencies, asset diversification is often recommended and a well known (primary) exchange and a regional exchange (secondary) is highly suggested. When referring to a smaller( regional) cryptocurrency exchange in comparison to a larger or more well-known exchange, it is often referred to as an “alternative” or “secondary” or “regional” exchange. These terms indicate that the smaller exchange serves as an additional option or alternative to the main exchange you use. It is worth noting that the cryptocurrency industry is constantly evolving, and new exchanges emerge frequently, so there may not be a specific universally recognized term for smaller crypto exchanges. However, the aforementioned terms should effectively convey the idea that it is a secondary exchange to complement your primary one.

Having a primary crypto exchange and a secondary crypto exchange can be beneficial for several reasons:

1: Diversification of Assets: By using multiple exchanges, you spread your cryptocurrency holdings across different platforms. This reduces the risk of losing access to all your funds or assets if there are issues with your primary exchange. It also provides an additional layer of security against potential hacking or security breaches that could affect a single exchange.

2: Arbitrage opportunity: This is very profitable and often seen in regional exchanges where they offer cash deposits. The price discrepancies seen in regional exchange as compared to primary exchanges ranges from 1% to 5% difference in extreme cases. Arbitrage refers to a situation in which an investor can potentially make a profit by exploiting price discrepancies or inefficiencies in different markets or exchanges. It involves buying an asset at a lower price in one market and simultaneously selling it at a higher price in another market, taking advantage of the price difference. Learn how I made my first $100,000 from trading crypto arbitrage between exchange like Luno, Coinwema, Binance and kucoin

3: Access to a Broader Range of Cryptocurrencies: Different crypto exchanges may offer different cryptocurrencies for trading. By using multiple exchanges, you increase the number of cryptocurrencies available to you, allowing for greater diversification of your portfolio and the opportunity to take advantage of various investment opportunities.

4: Liquidity and Trading Options: Each exchange may have its own order books and liquidity pools, which can result in variations in trading volume and price fluctuations. Having accounts on multiple exchanges enables you to compare liquidity and trading options, potentially improving your ability to execute trades at more favorable prices.

5: Regional Availability: Some exchanges have restrictions based on geographic locations. By using multiple exchanges, you can access cryptocurrencies that may not be available on your primary exchange due to regional limitations. This is particularly relevant for smaller or regional exchanges that may offer unique cryptocurrencies or cater to specific markets.

6: Risk Management: Cryptocurrency markets can be volatile, and technical issues or service outages on a single exchange can impact your ability to trade or manage your holdings effectively. By using multiple exchanges, you have backup options in case one exchange experiences downtime or other operational issues.

It is important to note that when using multiple crypto exchanges, you should consider factors such as security measures, regulatory compliance, trading fees, user experience, and customer support. Conducting thorough research and due diligence on each exchange is crucial to ensure they meet your requirements and align with your trading or investment goals.

Disclaimer: Crypto assets are unregulated & highly speculative in some EU countries. No consumer protection. Capital at risk.

Some of the links in the article are links to third-party websites or other content for information purposes only. The referral links in the article will give us a commission with no additional cost at your end. For example, if you click on any of the affiliate links, and sign up on any of the platforms, Yinksmedia may receive some rewards as stated in the platform Referral Program.

This is not financial advice. Investing and trading in crypto assets is high risk and not suitable for every consumer. The value of crypto assets may go down or up. As many crypto products and markets are unregulated, you may not be protected by government compensation and/or regulatory protection schemes. You should be prepared to lose money if something goes wrong.

Yinksmedia does not recommend that any cryptocurrency should be bought, sold, or held by you. We advise readers to do their own research before trading any cryptocurrencies and invest wisely. Yinksmedia is not liable for investment gains or losses.