What comes to mind when you think of crypto trading? Charts and systems that are hard to understand? Many people see it this way, but it isn’t always so. There are easier trading methods that do not require reading and interpreting technical chart patterns, and one of them is P2P crypto trading.
In this guide, we will explain what P2P trading is and show you the basic things you should know in carrying it out.
What Is Peer-to-Peer Trading?
Peer-to-peer (P2P) trading refers to decentralized exchange markets that allow users to buy and sell cryptocurrencies directly with one another. The trading method differs from centralized exchanges because it is less vulnerable, and no middle agent controls your funds during a trade.
When you place an order on a P2P exchange, it is matched against pending orders from other users. The trades are then executed instantly, and you only pay a small network fee as compared to that charged by centralized exchanges. The advent of blockchain technology popularized the P2P trading model.
How Does Peer-to-Peer Trading Work in Crypto Exchanges?
P2P trading works without the need for a central authority, meaning that it is completely decentralized. Furthermore, the system is based on peer-to-peer protocols, permitting users to directly connect with other users to trade cryptocurrencies without passing through a middleman.
Although there are P2P platforms, they only serve as a medium for connecting buyers and sellers. Instead of having a single server run by a central authority, many servers run the same software, and this process is facilitated by using smart contracts.
A smart contract is a set of instructions that automatically executes when certain conditions are met. In this case, the smart contract executes when two parties enter an agreement and transfer funds from one account to another. The contract then releases the funds to the seller and transfers ownership of the item to the buyer.
In traditional finance, this process is carried out by banks and other financial institutions. These institutions are responsible for storing and transferring funds from one account to another. They also verify transactions and record them in their ledgers.
In P2P trading, third-party involvement is not needed because all participants are equal in rights and obligations. Instead, the system relies on consensus algorithms to verify transactions and prevent double-spending. Every participant has a copy of the ledger containing information about all transactions performed by all other participants in the network.
To reduce the chance of being duped when trading, most P2P platforms use a rating system so that traders can identify trusted traders by their ratings. Then, before initiating an exchange, you only need to check traders’ reviews to ascertain their reputation.
P2P Trading Strategies
- Arbitrage Trading
You can start to use arbitrage to your advantage. That is, buying cryptocurrency for a lower price in one place and then selling it elsewhere at a higher price. Many P2P traders use this trading strategy—they make money through price variations that could be caused by volatility, liquidity, or regional differences.
Using Binance as an example, you can search for cryptocurrencies available on the Binance spot and P2P markets, then go through the prices till you find a notable price difference that will make it easy to buy at a lower price and sell at a higher price.
- Buying and Selling Ads
You can buy and sell ads on some P2P marketplaces, like Binance. When setting your price, you can set a lower price to reach more customers or a higher price to generate more revenue. It all depends on your business goals.
- High-Demand Payment Methods
People usually pay more to use a specific payment method that is hard to find elsewhere. An example of such is the fiat option, which is not common on P2P exchanges. People who find transacting in their local currencies more convenient will have to pay more if such a currency is not commonly used.
In using this strategy, you can buy more accessible crypto at a price close to the market price and then sell it using another payment method that is less accessible. With this, you can make more money from those willing to pay more for convenience.
5 Features To Consider When Choosing a P2P Platform
In your search for a suitable P2P platform, there are certain conditions you must look out for.
- User-Friendly Interface: A good P2P platform must be easy for you to navigate. Ensure the menu is simple and easy to use.
- Good Security and Reputation: Confirm reliable measures to store your assets and secure your trading processes safely. Ensure you research the platform to confirm whether it is legitimate and trustworthy.
- Supported Currencies: Check if the cryptocurrencies you are interested in trading are available and supported by the platform.
- Payment Methods and Fees: Payment methods vary from one P2P platform to another. You must ensure that your desired payment method is accepted and available. Also, check if the platform you want to use charges fees—not all P2P platforms are free.
- Customer Support: Is the customer support service accessible and responsive? Check if they offer 24/7 support services. If that isn’t available, find out when they are active and if it works for you. In addition, test their response time to check availability and support.
P2P Trading Offers Better Earning Opportunities
P2P crypto trading platforms offer better opportunities to earn than traditional exchanges because there are no central authorities that set the prices. As a result, they typically provide better exchange rates and lower fees. P2P platforms also usually have higher liquidity than traditional exchanges because of the number of people using them. As a result, you won’t have to wait long until you find a buyer and seller for your asset.