1

I understand the basics of an exchange and how they work, but I am confused as to how one initially begins.

For example, in order for an exchange to function, there needs to be both bids and asks simultaneously. If there is no asks, then no one can buy that specific cryptocurrency therefore there is no volume/trades.

Would an exchange have to simply front some money and place ask orders themselves in order to get the volume jump started and then having the market take over?

2

For example, in order for an exchange to function, there needs to be both bids and asks simultaneously. If there is no asks, then no one can buy that specific cryptocurrency therefore there is no volume/trades.

No problem. One customer places the first bid. Later, someone places the first ask. If the prices cross, a trade happens. If not, then you now have an exchange with some liquidity.

Would an exchange have to simply front some money and place ask orders themselves in order to get the volume jump started and then having the market take over?

I don't see why. If I saw a new exchange with no offers at all, I'd happily place both a buy and a sell at prices I'd be happy to exchange at. The next person to come along may beat both of my offers if they're not generous enough. Now, the two of us are in a bidding war, the spread is getting tighter, and soon the prices will be attractive to people who need to buy or sell.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.