Although fixed rates don’t possess such popularity as floating ones, they can become a good reassurance and an efficient tool to tackle uncertainty in today’s market situation. This article will clear up all the ambiguities.
The market for online cryptocurrency exchange platforms is quite saturated nowadays. With the enormous amount of options available, each and every one of them has to work hard to keep up with the competition so as not to go out of business. Exchanges rush to add new features as soon as somebody else on the market adopts them – and one of such features has been “fixed rates”, that allow users to receive exactly the amount they see when exchanging crypto.
Despite fixed rates obviously being seen as something essential by the many platforms implementing them, it seems that users are not as quick to embrace them. Floating rates are still the most popular choice, with fixed rates not receiving as much attention.
However, before jumping to conclusions about fixed rates not being useful, we should first look at the possible reasons why they are being looked over. Could it be a lack of knowledge or simply fear of new things? Either way, the current unstable market conditions are the perfect time to acquaint yourself with this tool.
Fixed vs Floating
Let’s start with a review of what fixed and floating rates are. When you exchange one cryptocurrency for another, you may not receive the exact amount of crypto you see on the screen at the start of the exchange. That happens because of the way crypto-to-crypto exchanges work: the money is sent from your wallet to an exchange platform to be swapped, and this process is not instantaneous. It takes time for transactions to be confirmed on the blockchain, and so the exchange may happen minutes (or, on some rare occasions, hours) later, and crypto is exchanged at the rate available at that point in time, which can differ from the one displayed to you initially.
Fixed rates, just like the name suggests, “fix” or “lock” the rate and thus guarantee the amount of crypto that you see displayed will be the same as the one you receive. These options aren’t really present for fiat currency, as crypto-to-crypto exchanges take a bit more time than the traditional ones – anywhere from a few minutes to several days. The speed they’re carried out at depends on a variety of factors, some of which we cannot influence in any way. The longer the transaction takes, the higher the risk, as it means the window of time for the rate to change becomes bigger.
If you want to learn more about the two types of rates, how they are formed and how it impacts your daily crypto swaps, you can check out this handy guide.
Receive Exactly the Rate You Agreed to
In a way, fixed rates could be called the insurance of the crypto trading world. Just like with real-life insurance, you pay a little more to save yourself from potential big losses. The same happens with fixed rates: more likely, you may lose a few cents or so on every transaction you make. However, that is when the market is stable – which is not exactly the situation we are faced with today.
When the market is in disarray, fixed rates will aid you in not losing your money – perhaps it will be just a little bit, but with how highly volatile the crypto market is, few cents may turn into hundreds and even thousands. Ten minutes may not mean much in traditional markets, but what about cryptocurrency?
Two and a half years ago, Bitcoin lost a staggering $4000 in value in just one day. Back then, many hoped such an extreme price move wouldn’t occur again, and yet we’re faced with a similar situation today. Covid-19 reportedly still has not reached its peak, and yet the global economy has already been faced with a significant decline. Bitcoin has felt the crash, too, as in just one week its price dropped from approximately $8k to $5k. Furthermore, according to data collected by Coindesk, on March 12, in just one day, Bitcoin’s price fell by 49.6%. BTC is still facing extreme volatility, and there’s no way to predict how the price will move in the next hour or even minute. In situations like this, fixed rates are a great tool to use.
However, just like in real life, you never get something for nothing, and everything valuable usually comes with a price tag. Because “locking” the rate is an extra feature, you will have to use it at an extra cost of a higher commission fee. Ultimately, it is up to you to decide whether the extra cost of securing the rate at this moment in time is worth the benefit of avoiding the potential volatility in the upcoming future.
Of course, if you’re an experienced trader, you may already be using both of these tools, alternating them, analyzing the market and choosing which type of rates is more suitable for any given situation. However, if you haven’t heard of or used fixed rates before, don’t be afraid to try them. Fixed rates can benefit all kinds of traders, acting like a measure of security for newbies and an additional way to make profit for experts.
We hope that this article helped clear up some misunderstandings or questions you’ve had about fixed rates. They’re a great tool in times of uncertainty and a good reassurance if you’re worried about your funds.
Antonio Bileci, PR Director of Changelly, is a relationship-based marketer with a demonstrated history of working in, and around the software, online betting, retail gaming and blockchain industries. Being a natural-born storyteller, and not shy of working deep in the tech sphere, he’s spent his years implementing the marketing strategy, content strategy, affiliation techniques, branding and consumer psychology research-based projects.