Coin Exchange Profits

Question

I've seen plenty of people looking into setting up coin exchanges. I'm also interested in the development of cyptocurrencies and think it might be a good idea to get involved in the business environment as well.

I'm wondering, however, if starting one is a worthwhile investment, considering one must balance server costs, development, etc. I'm an intermediate software developer yet understand creating an exchange is beyond my limits, so I would certainly need a team to help me realize this goal.

If the only profits of the coin exchange are a small fee for every transaction, I can't imagine an exchange would be highly profitable and certainly wouldn't be able to pay off development/server fees?

Answer 1

You are right that you will need significant volume to make substantial profits.

Which country are you located in? Some countries will also have very high regulatory startup costs, which is why you will see some exchanges deciding to block all users from some jurisdictions.

What would make your exchange different from the rest? Without a substantial marketing budget it is hard to attract a lot of volume. People like to trade on the exchanges with the highest liquidity and as a new exchange you would not have that.

Try to focus on building something unique. When you launch an exchange focus on building volume at first (a maker taker model fee model and a referral system may help with that). Profits should be your long term concern (not short term) assuming you have enough capital to run at a loss for a while.

Most importantly make sure you exchange is secure! Trustless decentralized exchanges should gain in popularity over time. Too many exchanges have absconded with funds or been hacked already

Answer 2

Additionaly to what @opensourceprivacy wrote, if I were you, I would consider building my services on top of already-existing trading engine like BitShares (I believe that something similar is possible with NXT, too).

Using BitShares, you would become a gateway, i.e. somebody who takes e.g. BTC and issues own token (IOU) e.g. TACOMA.BTC, this token could then be traded on BitShares' decentralized exchange.

Pros:

• you don't need to implement your own trading engine
• (possibly) larger trading volume
• referral program
• your ledger is open so all trades are transparent (nobody can accuse you of cheating)
• unlimited number of trading pairs - your customers can trade TACOMA.BTC with bitUSD/OPEN.LISK/METAEX.ETH etc. from day 1 with no additional work from your side
• you can create your own web/desktop/mobile client or you can reuse already-existing one (e.g. https://bitshares.openledger.info)
• it is still possible to comply with local regulation/law

Cons:

• you lose control over trading fees (you still can charge deposit/withdrawal fees)
• if there is any technical/reputation problem with BitShares, your service will suffer as well
• not sure how difficult it is to implement
• you are limited with technology stack so possibly more difficult to hire developers