What is Peer-To-Peer Trading? Advantages of P2P Trading

What is P2P Trading?

P2P refers to peer-to-peer trading which means that investors are able to send and receive cryptocurrencies directly with each other without depending on third parties or intermediaries. It means that investors are creating a trading contract directly with each other rather than purchasing virtual currencies on CEX or DEX.  

Centralized and decentralized exchanges list various types of tokens that investors can purchase using liquidity pools or creating a trading account. Centralized exchanges add all transactions on their platforms to an order book.

Trading on a centralized trading platform can subject the investors to slippage meaning that they are unable to get the exact price they are aiming for. Therefore, P2P trading grants full control over asset prices, settlement time, and the counterparty.

How Does P2P Exchange Work?

P2P exchanges usually do not list digital currency on their platforms. Instead, they are present in the form of a social media network such as Facebook Marketplace.  Potential investors visit the site where they can find the required deal and prices and conduct a trade with another buyer or seller.

However, trading with strangers is difficult on account of absence of trust. Therefore, P2P exchanges work as a trustless network that warrants that both parties are going to keep their end of the bargain.

Visitors on the platform can post ads and view ads from other investors. Rather than offering a third party medium to process the transaction, the protection of the P2P network comes from rating systems and feedback.

In some cases, P2P trading systems may also use escrow accounts where buyers may transfer payments and sellers may transfer digital currencies in advance to ensure that both parties are going to comply with the trading contract.

Advantages of P2P Trading

Here are some important advantages of P2P trading options that investors can avail:

Globalized Trading

P2P Trading exchanges allow investors from all parts of the globe to connect with different buyers and sellers. Therefore, they are operational in tens of countries meaning that investors can buy or sell digital currencies with anyone with an added advantage of massive liquidity.

Multiple Payment Method

Traditional trading platform does not list a wide variety of payment options as P2P trading. Binance P2P trading has over 700 payment options including cash payments in various regions.

Zero Trading Fees

Centralized exchanges can charge an upfront fee based on a specified percentage. However, P2P Trading platforms allow investors to connect and conduct transactions free of cost. Nevertheless, the investors must check the requirements and fine print before using a P2P trading platform.

Secure Escrow Transactions

Trades taking place on a p2p trading platform are made secure by employing an escrow account. It is an intermediary wallet that allows the investors to ensure that the terms of the contracts are fulfilled by both parties.

Furthermore, escrow accounts ensure that transactions are confirmed within a given time frame and if any party fails to make the payment within the allotted time the transaction is automatically cancelled.  

Personalization

Traders using the P2P platforms exercise complete control over the price, exchange rate, payment method, and the quantity of traded coins per transaction.

Risks Associated with P2P Trading

Here are some risks that investors should account for when they are trading cryptocurrencies on P2P trading platforms:

Slow Speed

The transactions taking place on p2p trading platform are conducted in an instant when both parties have confirmed the transaction terms. However, these trades may be subjected to an indefinite delay in case the transaction is erroneous or the other party fails to comply with the contract requirements. 

On the other hand, traditional trading platforms do not require investors to confirm transactions before moving on to the next one.

Low Liquidity

P2P exchanges have low liquidity in comparison to centralized trading platforms. Therefore, P2P are not ideal for large-scale trades that are most suited for Over-the-Counter or OTC trades.

Conclusion

Investors can make a good buck by trading cryptocurrencies on P2P trading exchanges. These platforms offer many important advantages for their investors such as arbitrage with fiat and other exchanges as well as publishing personalized ads.