Trading Guides


Is volume important for cryptocurrency exchanges?

When it comes to cryptocurrency exchanges, volume matters

Basic economic principles tell us that something no one is willing to buy isn’t worth very much, and cryptocurrency exchanges work in the same way. Unless you’re able to find a willing buyer to sell your cryptocurrency/tokens to at a fair market value, you’ll be stuck between deciding to hold onto your investment and selling at a reduced rate.

The importance of volume

On the operational side of things, cryptocurrency exchanges need volume to keep their doors open. Volume is what makes exchanges money.  They collect transaction fees on trades through their platform—typically a percentage of the total value traded. Without a certain volume threshold, exchanges will ultimately fail to be profitable business ventures.

For you, as a cryptocurrency investor, exchange volume is equally important. Exchanges are your best bet at buying, selling, and trading cryptocurrencies. Sure, more individualised and under-the-table transaction methods may score you lower fees and better rates, but official exchanges provide communal areas for buyers and sellers to meet and make relatively quick and easy trades at as close to market value as possible.

A larger gathering of buyers and sellers usually pulls the exchange price towards equilibrium, while a poor exchange volume typically means slow and/or inefficient trades, since the overall asking prices of sellers don’t meet the bids of potential buyers.

When you’re trying to sell any asset, a high demand works in your favour and nets you a more favourable price. Selling your cryptocurrency holdings is no different. You could potentially ask for a high price and set a rather lofty sell order, wait a little bit, and maybe the sell order will go through due to low volume and antsy buyers. However, more volume and a larger pool of buyers will likely work in your favour and allow your equally-priced sell order to be met by a buyer’s bid and go through more quickly.

The same applies if you’re looking to buy a cryptocurrency coin or token—you’d likely be better off in an exchange environment that has a higher volume traded on that particular crypto pairing. More sellers should give you the opportunity to buy at your desired price more quickly. That doesn’t mean a panic seller won’t trigger your buy order on a low-volume exchange, but more often than not, your best bet is to be on a high-volume exchange with a reasonably placed buy order.

So high volume allows for easier inter-conversion between different cryptocurrencies, fiat money, and other assets. An easily-navigable exchange that offers a multitude of different pairings trading at significant volume is the ideal place to be for the average cryptocurrency investor.

Low-volume exchanges

Low-volume exchanges can create good arbitrage opportunities, but you’ll want to make sure you can easily transfer and/or withdraw any such purchases before fully committing. These arbitrage opportunities often exist and appear on low-volume exchanges because the coin/token is in low demand and/or something is wrong with the exchange’s operational features. If that’s the case, you’re probably best off not taking the bait, but cryptocurrency arbitrage can be a profitable venture if you seek out the right low-volume exchanges where tokens and coins can be bought at bargain prices or sold off at a premium.

So yes, volume most certainly does matter. Whether you’re an exchange looking to bring in more money from trading fees or an everyday investor looking for trades to process quickly, you’ll most likely benefit from high volume and be frustrated by the sluggish nature of low-volume operations. If you have a choice—and no other factors strongly influencing your decision—go with the high-volume option every day of the week. You’ll be thankful you did.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.