What is Peer-to-Peer Trading and How Does It Work?
Peer-to-peer (P2P) trading is a form of trading that allows people to trade fiat currencies for stable cryptocurrency and vice versa without a third party or intermediary.
To better understand this, think about how traditional cryptocurrency exchanges work. They don’t allow you to transact directly with the other party. These exchanges, for example, Coinbase, organize your transactions on your behalf, and the amount you buy or sell is solely determined by the market price.
P2P is the direct opposite of this.
It gives you control over the entire process. You get to choose who buys your cryptocurrencies and who you sell them to. You can even choose the time the transaction is carried out, what offer best suits you, the payment method, and the pricing.
Think of P2P as an evolved version of traditional banking. It carries, at its core, the essence of DeFi, which is removing the need for a middleman while making transactions more seamless, secure, and transparent.
You can do all of this while safeguarding your privacy.
How does Peer to Peer Trading work?
P2P trading is done on P2P platforms. A P2P trading platform is a platform that allows users to trade directly and exclusively with each other.
These platforms use top-notch match engines to connect buyers with sellers. Imagine how transactions work on Craigslist or Facebook Marketplace. Something like that, but way more secure.
Let me break it down.
Your money is usually stored in a digital wallet that is controlled by the platform.
Let’s say, for example, you have three Bitcoin (BTC) in your wallet that you want to sell. You will put out your offer, and the platform’s matching system will connect you to a buyer.
If you want to buy, you will be presented with a list of sellers and their offering prices. You get to choose which buyer you go with. Click on the buy option, make the transfer, and once the seller confirms it, your BTC is sent to your wallet.
Transaction complete.
Some P2P platforms like Binance and Paxful use a rating or feedback system to establish trust and protect participants. That way you can check the ratings and reputation of the other party before carrying out any transactions. Also, each transaction attracts a small fee collected by the P2P platform.
Pros and Cons of P2P Crypto Trading
Now that we know how P2P works, let’s explore its good and not-so-good qualities.
Pros of P2P crypto trading
Let me start by saying there are many advantages of P2P trading. But I will be sharing just a few:
a. It gives you access to trade at a global scale
P2P gives you access to a global marketplace filled with buyers and sellers across the globe. It allows you to trade with anyone, regardless of their location. You can be in the USA and buy cryptocurrency from someone in China.
The best part is that despite the distance, you can carry out transactions in seconds.
b. It provides multiple payment options for transactions
P2P platforms do not restrict you to one payment option. They provide you with multiple payment options. Most of them have traditional payment options like PayPal and credit cards, as well as digital wallets and cryptocurrencies like Ethereum and Bitcoin.
Some exchanges, e.g Binance, allow in-person cash payment for people who do not have access to a bank account for those who prefer face-to-face transactions.
c. Some P2P platforms do not charge trading fees
This doesn’t happen with all P2P platforms, but some of them allow you to carry out transactions with zero fees incurred. This allows you to buy and sell as many times as you want without worrying about paying extra fees.
Fees can be as low as 0.05%. For example, Binance fees range from 0% — 0.35%. Paxful fee for sellers is 1%. However, If you’re buying cryptocurrency, you won’t pay any fees.
d. Carry out secure transactions
P2P trading platforms protect the transactions through security features such as two-factor authentication and encryption. Some of them provide escrow services. Funds are held by the platform until the terms of the trade are met by both buyer and seller.
With these security features in place, you can trade with the assurance that your funds are safe.
e. Get control over your trade orders
While carrying out P2P transactions, you have control over your trades. Unlike centralized exchanges where the exchange manages the order, you can set your own trade orders; set the price at which you want to sell or buy, and the amount of currency you want to trade.
Cons of P2P trading
It’s time to flip the coin and examine the risks involved in P2P trading.
a. P2P platforms have low liquidity
Since P2P platforms are relatively new, they have lower liquidity than their centralized counterparts. You may not always have somebody that will match your order. This means you have to wait a while to find a seller or buyer, and this can affect the price of the currency you are trading.
b. You might experience slower trading speeds
At times, you will be able to conduct a transaction almost instantly once you and the other party confirm the transaction. However, it doesn’t always happen that quickly. One party might delay the trade or even cancel it halfway for various reasons.
This can delay your trade and take up more time than it normally should.
Here you have them, the pros and cons. It’s left to you to decide whether this is something you’d like to try.
Once you decide to make your first P2P trade, the next step is to get the right exchange platform. But do not worry, we have compiled a list.
Top P2P exchange platforms you can trade on
Here are some of the top exchange platforms you can trade on:
Now you have the list but how do you know which is best for you? Keep reading.
Key features of a P2P exchange platform
What should you look out for when deciding which platform to go for? Below are some features:
- It should have a powerful matching system
Whatever P2P exchange platform you choose should have a great matching system that can match buyers and sellers swiftly and accurately.
2. It should support multiple cryptocurrencies
There are P2P platforms that support just one cryptocurrency and it doesn’t make them any less good.
However, if you are going to be trading with different cryptocurrencies, you need a platform that supports multiple cryptocurrencies. In fact, the more, the better. This way, you do not have to go back and forth between different applications to trade different cryptocurrencies.
3. It should have multi-layer security
Security is very important. You have to be sure that your funds are safe. Some security features include:
- SSL implementation
- Anti-Denial of Service (DoS)
- Two-factor authentication
- HTTP Parameter Pollution Protection
- Email/Google Authentication
4. It requires KYC and AML verification
To minimize scams and hacks, your P2P platform should verify its users to ensure their legitimacy. This means there should be a KYC (Know Your Customer) process that is mandatory for all users.
Also, AML (Anti Money Laundering) are regulations that prevent illegal trading on the platform.
5. It should have an escrow system
Look out for a P2P platform that has an escrow system, especially a smart contract-based one.
This is how it works with an escrow system. Once a trade is set, the assets of the seller are locked in the escrow account. When the buyer pays and it is confirmed, the seller’s asset is unlocked and transferred into the buyer’s crypto wallet.
Looking for where to start your P2P trading journey?
As a beginner, your best bet is to start with a platform that simplifies P2P and makes it very easy to trade — and that platform is Xend Bridge.
Xend Bridge is a product of the global crypto bank, Xend Finance. It is a trading platform that allows you to convert your local currency into stable cryptocurrencies and vice versa.
Transactions are seamless on Xend Bridge and it is very easy to navigate, even if you have no idea of what P2P is. A trade can be completed in less than 15 minutes.
It is also very secure. Sellers of stable cryptocurrencies are vetted and approved by the company. Not only that, it has multiple layers of security including two-factor authentication, and email/Google authentication. And yes, it has a KYC process for user verification.
Wondering which platform to start your P2P journey on? It’s Xend Bridge.
Check out how Xend Bridge works here.
Anything else you would like to know?
At this point, you know how P2P trading works and what to look out for when you are choosing the right platform for you.
If you have any questions or need further help, leave a comment and we will be glad to help.
