Even though most of us prefer the giant crypto exchanges for trading, there are some times that we need to use the ones with low cap. Considering my experience, I have to use a couple of exchanges that have listed the gems that I follow or some of the local exchanges that I can trade for fiat currency.
Let's be clear. If you rely solely on low cap exchanges, you are a gambler 😅 , However, is it the worst idea to use some low cap ones for specific aims? Not actually... I will bunch both my own experience and the things that I witnessed during my crypto journal.
What are the pros of using low cap exchanges?
First of all, either low or high cap exchange, you can seek for arbitrage trading opportunities. As you know, the pairs are numerous, and especially for fiat pairs, we have lots of chances to make gains. For example:
I use a really really low cap, and of course dangerous, exchange for fiat/crypto trading. Today, I traded LTC nearly above 1,5$ lower than the actual price. If the amount of money that you allocate for trading is higher, arbitrage is a profitable way to make gains. However, please consider these parameters:
✓ Deposit and withdrawal options are available for both exchanges
✓ Trading and withdrawal fees are not above your profit
✓ The blockchain is operating perfectly as usual
✓ There is no bad news triggering Trader Robots to sell off their portfolio.
These are the things that I always check before trying to make gains through arbitrage. Besides, I would love to emphasize the importance of auto trading bots and their "sell-off" actions. I had some difficulties once or twice because of extending waiting hours of confirmation + Bad news making the whole market red...
The second option way that you can utilize low cap exchanges is to manipulating the spread between ask and bid. What do I mean?
From time to time the holders want to sell the digital currency and take their money back ASAP. In these circumstances, the highest bid is always filled. A bit different kind of Win-Win, isn't it? ^^
I think these are the only advantages of using low cap exchanges for limited cases. It is time to talk about the dark of the moon.
What are the cons of using low cap exchanges?
First of all, low liquidity means you can never get the profit %100 by yourself. Even if the price skyrockets, you may not sell it at a near price in the exchange. For example, I had to buy BTC higher than the actual price and sold lower than the price of Binance, Coinbase, Kraken, etc. It is not sustainable for traders.
Next, low cap exchanges are the ones that are least invested. As a result, your money, your personal information (KYC), and your time is in danger. IF you have never created an account with KYC, I advise you to stay away from revealing your identity. Believe in me, your information is much more valuable than any digital currency.
Also, low cap exchanges are dominated by small whales who do not like sharing their profit. For example, they may give an order to 0.1 to sell and the moment people start trading at that level they decrease the ask to 0.096 then lower and lower...
As you cannot buy and sell at the time you expected to do so, you are fed up with trading, investing, and using the platform. I have my coins since 2018 on an exchange. Why do not I take my money from there?
Because of the unacceptable withdrawal fee or threshold. As they have operation costs and it is hard for them to compensate these costs, they have to increase their market maker/taker fees, withdrawal fees and set a threshold for withdrawal. However, as customers, we do not want to be the one who pays the expenses and a vicious cycle starts forming.
One more risk is that your account might be suspended because of abnormal reasons. Since your money is kept on the platform, you have to obey the rules. If there is any detail in the terms & conditions that you did not even dare to read, then you may have to take further actions to take your money back. It is a rare situation but there is such a risk, too.
Finally, it is hard to find a reliable exchange in such an era in which we see every single thing is copied and pasted as if a new product is created. Things are always doubtful; scammers are everywhere. As someone who lost lots of money for 4 years, security comes first in any case.
Yet, if you want to use low cap exchanges;
I suggest you search a lot before diving into them. It is easy to find relevant information about any platform or project in 2020. Do not be lazy and there is no use losing your money for the sake of nothing. First, consider the risk; then trade for arbitrage or realize your profit. Otherwise, it turns into gambling.
The crypto market is already hard to survive, do not make things even harder for yourself 😌
Do you use low cap exchanges? If yes, what is the rationale behind it?
Please enlighten us 👊🏽