Whether you trade stocks, commodities, or crypto, you will need a trading platform to hold your assets within. These platforms facilitate your trading, buying, and selling instantly to take advantage of market trends as soon as they emerge. Most trading platforms offer a vast array of assets, making them perfect for operating a diverse portfolio.
However, no two trading platforms are the same, offering a host of benefits at various costs. The primary difference is whether it is centralized or decentralized. Discover in this article how centralized and decentralized platforms differ and how you should decide which is best for your unique needs.
What is a Centralized Trading Platform?
The key characteristic of a decentralized trading platform is that they are run by a third party that uses a shared server to facilitate all of your transactions. This means that centralized trading platforms are tied closer to regulations, having to follow Know Your Customer (KYC) and Anti-Money Laundering (AML) rules.
Why Use a Centralized Trading Platform?
Centralized trading platforms offer the simplest and most ergonomic trading experience. All you need to do is create an account and start trading. Furthermore, the third-party facilitates the trade almost immediately, and you don’t have to wait around wondering if your trade has been successful.
Why Not Use a Centralized Trading Platform?
Many experienced traders do not like using these platforms as they do not fully control their assets. The platform holds custody on your behalf, and you will be powerless to protect your assets. For example, if a hacker breaks into the trading platform, they may easily steal the assets held within.
What is a Decentralized Trading Platform?
Traders using a decentralized trading platform operate their portfolios without a third party’s involvement. This is because the trade is overseen by a “smart contract” that exists between the buyer and seller. Therefore, the buyer and seller remain anonymous and can conduct transactions without being tied to KYC or AML regulations.
Why Use a Decentralized Trading Platform?
Using this platform, you will possess the key to your assets and may do whatever you like with them. Many traders feel comforted by being able to protect their assets, and understand that they are less likely to suffer from theft.
Why Not Use a Decentralized Trading Platform?
Decentralized platforms can be unwieldy. With trades being set up individually, the whole process slows down. Furthermore, decentralized trading platforms can be daunting for the inexperienced. Having to set your own terms for the trade can lead to you not getting a good deal.
Which Trading Platform is Better?
There is no single right answer for which type of trading platform is best because every trader has different needs. Generally, centralized is better for new traders, and decentralized is better for experienced traders. However, there is a host of differences within these categories, and you should thoroughly research the costs and benefits of each platform to decide which you should use.