Are cryptocurrency exchanges ECN or market makers?

The other day I wrote an article about Ripple brokers and I realized one thing:

The so-called exchange houses have very different spreads from each other, at least with certain instruments, such as Ripple.

For example, the spread I observed in Poloniex was 0.07% of the instrument while the Kraken spread was 0.27%, about 4 times higher.

To give us an idea of ​​the big difference, which cannot be seen in these decimal figures, it is as if in a broker they offer you the EURUSD with 1 pip and in another with 4 pip.

And not only that, but the rest of the exchange houses analyzed also have different spreads, such as 0.10% in Binance or 0.20 in Bitfinex.

So it is not just two sites but all have different spreads that are also quite stable. That is, the spread of each of these houses varies around these figures, for example in Poloniex ranges from 0.04 to 0.08 for most of the time and the same for the others.

And are not all of these exchange houses supposed to be ECN trading environments?

Are not they supposed to be market makers, like CFD brokers?

Yes, it is supposed, but the problem we have also comes about a misunderstanding regarding this issue of the ECNs and market makers brokers and of which I have already spoken on some occasion with respect to Forex brokers.

The issue is the following: not because they exchange houses mean that they do not use market makers as market suppliers, or that even some of them are market makers by themselves.

The first point you can take for granted: of course, exchange houses use market makers to provide liquidity.

If not, there is no way that any exchange house wants to start offering criptocurrency buying and selling services.

What happens is that in order to guarantee a higher and more efficient flow of prices, it is normal for an exchange house to have several market makers, suppliers of liquidity, together with a large group of traders placing orders constantly in the market.

Only in this way can a more or less ECN environment be guaranteed, with larger traders (market makers or dealers) and much smaller traders (independent traders).

Exchange houses ECN or market makers of cryptocurrencies

It is with the second point that more doubts assail me.


First of all, we must bear in mind that we are not talking here of small exchange houses but of some of the largest ones in the cryptocurrency market.

Understanding this we must understand that these houses should have similar liquidity providers, if not the same ones, at least, that work in a similar way.

That’s why I’m surprised that the differences we see in these exchange houses are so big.

That is, it is as if some ECN Forex brokers had spreads in the GBPUSD (equivalent to Ripple in the Forex market so to speak) of 1, others of 2, others of 3 and others of 4, and all told me they are ECN.

How is it possible?

If they were ECN, they should have a fairly similar spread, with minimal differences.

For example, 0.07%, another with 0.08, another with 0.09 and another with 0.10% average spread on their platforms.

With these differences, still of the order of 50% between the first and the last case – that is to say significant – we see how the thing is not so outlandish and that it is possible for a broker to have more and better liquidity providers – market makers – that others.

However, what we see is totally monstrous disparities, which should not exist if the ecosystem of market makers were normal.

Anyway, it is very difficult to discern what is true and what is lie in this world of cryptocurrencies, because everything remains in a digital system of which, in reality, we have very little control.

In fact, if I had to bet, I would say that many of the hundreds of so-called cryptocurrency exchanges that come to the market are undercover market makers.

I am not saying that those that I have named are, but many others we can be sure that they are.

How to prove otherwise?

Exactly, that is the problem.

That the only proof that they are exchange houses is that those words are on their website, but that does not prove anything as you will understand. They are only words written in a digital environment that see our eyes through the screen.


Regards and good trading.

Original article: ¿Son las casas de criptomonedas ECNs o market makers?