Broker VS Exchange

TLDR: Exchanges allow you to exchange assets, while the broker gives you exposure to the price of these assets against collateral.

For most of the people, the differences between brokers and exchanges are confusing, especially when exchanges started to add broker features such as margin trading and vice versa. In this article, we will draw a line between them and explain to you why Jarvis decided to develop a broker-like exchange?

For us and in line with our philosophy, a broker is used to get exposed to the prices movements of certain assets and without owning or possessing them, while an exchange is for converting one owned asset into another one. The definition hereafter is ours, to let you better understand Jarvis.

What is an exchange

It is pretty straightforward to understand how the exchange works. It comes from the word itself; you exchange an asset A for an asset B. Basically, an exchange is an entity that acts as a trusted third party so one can exchange their assets with someone else. Most commonly, users ordered are listed in an orderbook, and the exchange protocol only matches the orders and settle the trade. The exchange can be centralized or decentralized, custodial or non-custodial, but the principle remains the same. Eventually, exchanges started to grow and add more functions and features to their platforms and expand the base concept thanks to margin trading.

What is a broker

A broker is an intermediary between a market (which could be an exchange) and the traders or investors. Unlike the exchange, users do not possess the asset they are trading, and they do not exchange anything they own. The broker “locks” a specific amount of money as collateral on the users’ account, give him a trading power (the so-called leverage or margin) and executes an order on behalf of the trader. Therefore the broker could access to any financial market in the world from single collateral. However, without going into detail, a broker could misbehave as their interest could be misaligned with the one of their very own client (in the case of market making example).

What is the superior UX value of a broker over an exchange?

As we explained, a broker gives you access to everything against collateral while an exchange forces you to get an asset to exchange it for another one. Let us show you the difference from a speculator viewpoint between the two by using the prism of the user experience.

Let’s imagine you have some Ripple (XRP) and you see the possibility of Stellar (XLM) to increase in price; therefore, you seek the opportunity to buy.

Your research was on point, XLM escalates in price, and to diversify and secure your earnings, you decide to reinvest them into Apple stocks (AAPL).

With an exchange…

1. To acquire XLM, you will first have to convert your XRP to ETH, BTC or USDT since there is no such trading pair as XRP/XLM… And pay fees… and wait a lot as these assets are traded on a centralized exchange.
2. Then you need to exchange your ETH, BTC or USDT for XLM… and pay fees again.
3. As for now, you have decided to dump your XRP (which could still gain a lot of value) for XLM (which you think will gain more value than XRP). You have made an arbitrage between these two assets and pay fees… and wait again…
4. This is the stage where things get more complicated. You will need to sell your XLM for fiat, withdraw them, open an account with a stock exchange or CFD broker and buy actual stocks (unless AAPL has been tokenized, or synthesized, which in that case you would be able to get exposed to the stock movement with cryptocurrencies).

With a broker…

1. You put your XRP as collateral, so you stay exposed to the potential increase in the value of the asset. You borrow dollar against this collateral, and with the help of small leverage offered by the broker, you take a long position on XLM/USD. If the XRP increases, you would be able to increase your XLM exposure. When you are done, you close your position and immediately open a long one on AAPL using your XRP collateral and the dollar you won on your XLM position. That’s it.

From a user experience point of view, there is no debate: using collateral and a broker to gain access to any financial market is far superior and allow the so-called interoperability.

This is why we have chosen this path for the Jarvis exchange, a hybrid solution between a broker and an exchange. To be fair, an exchange has some advantages: you can exchange almost everything as soon as you find a counterparty, while brokers only allow you to get exposed to very liquid assets. Also, the broker does not accept all the collateral… it has to be a liquid one. Therefore, the best system would be a combination of the two, the broker for most assets, and exchange for illiquid assets. We believe that combining those two will create exceptional User Experience and unite traders from all over the world while also giving access to anyone to financial markets.

And it is exactly what we are going to do. We will start of course by the broker which allows giving more utility to your ERC20 tokens (as you will be able to trade any market thanks to it, without giving away its ownership). It is somehow like if Jarvis allows you to create DAI on the top of any liquid ERC20, but only to trade on Forex, stocks, commodities and so on…

Vsevolod.

The possibilities are limitless
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⛔ Risk Warning: Investing in digital financial assets involves a high degree of risk and volatility and is not suitable for all investors; do not risk more money than you can afford to lose. Please consult an independent professional financial or legal advisor to make sure the product is right for you.

⛔ Disclaimer: This article contains text, data, graphics, photographs, illustrations and information (“Information”) connected with Jarvis International and/or other entities part of the Jarvis group ( “Jarvis”). Jarvis attempts to ensure Information is accurate, however, Information is provided “AS IS” and on an “AS AVAILABLE” basis and may not be accurate or up to date. The publication of this article does not represent solicitation by Jarvis of buying the token “Jarvis Reward Token” and is not to be considered as a recommendation by Jarvis as to the suitability of any investment, if any, herein described. No action should be taken or omitted to be taken in reliance upon Information in this document. Jarvis accepts no liability for the results of any action taken on the basis of the Information.