This article has been written by Sharanya Ramakrishnan, pursuing the Certificate Course in Capital Markets, Securities Laws, Insider Trading and SEBI Litigation from LawSikho.
Table of Contents
Introduction
The number of digital assets is growing at an ever-increasing pace all around the world. These decentralised digital instruments have revolutionized the world of finance. As a result, there has been a steady increase in the demand for tools and services offered by digital asset trading platforms.
A digital asset trading platform is an outlet where cryptocurrency exchanges are directly connected all over the world. It is a platform that permits its users to buy or sell digital assets through a single account/platform. Cryptocurrencies can be traded for several other assets such as government-issued fiat money or other digital assets. Certain digital currencies can be represented by real-world tangible commodities such as precious metals (gold and silver) or real estate.
It is easily accessible and is user-friendly for both novice and professional traders as it prepares and measures data without any delay while simultaneously providing accurate charts. It is also well-equipped with adequate cyber-security technologies and infrastructure.
Consequently, by offering a wide array of benefits, such a platform is viewed as an opportunity for growth and is being adopted in a widespread manner.
Types of digital assets that can be traded on the platform
A digital asset is said to be a digitised right to possess, use, control and own an asset. In simple words, it can be viewed as content owned by a person that can be stored digitally. It is a repository of value.
Digital assets are of the following two types:
Cryptocurrencies
These are virtual currencies that can be employed for the purposes of trading and as a method of payment for goods and services. Their main features include:
- Being decentralised, i.e., placing reliance on code for handling issuance and transactions instead of having a central issuing authority.
- Utilising blockchain as their technology for managing their transactions.
- Engaging cryptography (hi-tech encryption technique), to protect and verify their transactions.
Examples of cryptocurrencies are Bitcoin, Ethereum, Bitcoin Cash and Ripple.
Digital/security tokens
To put it simply, tokens are units of value circulated by organisations capable of being customised and built on top of blockchains that are already in existence. These are digital versions of tangible traditional assets which already have a value such as traditional shares or real estate. These are given away in Initial Coin Offerings, a public sale to raise funding for particular projects and can further be traded in the secondary market.
Terminologies found on a digital asset trading platform
Although there are many familiarities between digital asset trading and traditional trading, certain trading terms are undoubtedly perplexing for beginners. Discussed below are the key trading terms:
- Trading pairs– These represent the digital assets that can be traded for each other on a trading platform- for example Bitcoin/Litecoin (BTC/LTC). The main use of such pairs is to distinguish the costs of different cryptocurrencies.
- Last price– It represents the price of the last trade occurred.
- Market price– It constitutes the current price/value of the digital assets provided by the platform.
- Order-book– It comprises a list of all open buy and sell orders.
- Open orders– When a user places a buy or sell order at a definite rate, such an order can be viewed and tracked in the ‘Open Orders’ column of the dashboard.
- Market orders– These are orders of the most basic kind. The buyer specifies the total price he/she wishes to spend on purchasing the asset. He/she does not have an option to limit the order both in terms of size and price.
- Limit order trading– It represents buying and selling of a particular digital asset at a specific price. Therefore, a limit is placed on the order in terms of the price per unit.
- Ladder order or Stack order– In such types of orders, the user stipulates a range of price limit orders. For every such order, the user provides the same details as provided in an ordinary limit order. For example, if a user lodges 10 orders in a platform, once the first order is effected, it automatically triggers placement of the second order. The same goes on till all the 10 orders are executed. The ladder order can consist of a mix of buy and sell orders.
- Split order– in such types of orders, the size of a price limit order is split into smaller sizes and several different limit orders are placed in one shot. Each of those several orders will be effected based on their respective order parameters.
- Stop loss– While trading in digital assets, minimising losses is of utmost importance. In order to evade huge losses, a user can provide a target at which he/she wants to exit with a minimum loss when the cryptocurrency is falling. Such users can place a stop limit, either during the buy order or when the coin is in the wallet.
Benefits offered by digital asset trading platforms
No geographic barriers
An investor from any part of the world can invest in digital assets without leaving their territories with the speed and security offered by the platform.
Increased liquidity
Digital assets can enhance the liquidity of the real-world tangible assets by allowing fractional ownership and effecting transfers from one person to another without any impediments.
User experience
The deposit and withdrawal processes are simple which makes the platform very user-friendly.
Easy access to data
The platform provides tremendous opportunities to trade for its users by supplying real-time data analytics and accurate charts to access historical data.
Low entry fees
As the digital asset trading platforms are automated, the trade commissions and monthly fees will be at a minimal rate. Transaction costs are low for digital assets due to removal of intermediaries, lower fees for transactions on blockchain and reduced counterparties risk.
Redemption
Digital/security tokens that are represented by physical assets such as gold, can be redeemed against such physical gold or fiat.
Digital asset trading platforms in India
It is important for a user to choose a trading platform that provides considerable functionality, is easily accessible and secured. The following are the top digital asset trading platforms in India:
CoinSwitch Kuber
It’s one of the most renowned cryptocurrency exchange aggregators in the world, supporting several countries including India. It hosts more than 100 cryptocurrencies on its platform. It started its operations in 2017. The users can access the collective liquidity of the ruling cryptocurrency exchanges in India to get the best rate and trade immediately after completing the KYC/AML procedures.
Features
- Extremely user-friendly.
- Promotes instant deposits and withdrawals.
- Provides the most competitive rates in the market.
- Smart and rapid KYC process.
- Speedy customer support.
CoinDcx
Launched in 2018, it is considered to be one of the most versatile trading platforms in the world. The users can access an extensive range of digital products and services backed by efficient security processes and insurance protection. It permits trading of more than 250+ coins and has 1 lakh+ monthly users. Its fee structure depends on the kind of digital asset traded. It is highly beneficial to Indian users as it provides INR to BTC trade on its platform.
Features
- Facilitates quick onboarding process.
- Is very simple, fast and secure.
- Offers minimal trading fees.
- Provides high liquidity.
ZebPay
It started its business in 2014 and has over 3 million users. It is one of the fastest growing platforms in the world with remarkable security protocols and advanced trading features. A user can trade across five crypto trading pairs with zero deposit fees.
Features
- Provides highly competitive rates.
- Features enhanced security controls.
- Promotes crypto-crypto trading.
- Offers ‘rate alerts’ feature.
- Engages solid API.
WazirX
It is claimed to be India’s most trusted digital asset trading platform. Transactions in the platform are carried out rapidly. It offers seamless trading experience over a range of platforms including Web, Android and iOS. The platform conducts frequent security audits to ensure safety of its users’ investments. It also supports peer to peer transaction ability and maintains a system that administers millions of transactions to meet user demand.
Features
- Provides highly efficient security.
- Promotes super-fast KYC procedures.
- Designed simply and effectively.
- Promotes instant transactions.
- Has minimal transaction costs.
Unocoin
Created in 2013, it is one of the oldest domestic trading platforms in India. It effectively helps the user in buying and selling digital assets. It trades in Bitcoin, Ether and Tether. It provides a unique Over the Counter (OTP) service to enable bulk trading by its users. It also offers a Systematic Investment Plan (SIP) feature that permits users to keep aside a particular amount to be deducted from their respective linked bank accounts every month to facilitate purchase of digital assets.
Features
- Facilitates OTC and SIP features.
- It is a highly trusted exchange.
- It provides a platform to purchase or sell digital assets with INR.
Regulation of cryptocurrencies in India and its impact on digital asset trading platforms
Presently, there are no regulations governing cryptocurrencies in India. Nevertheless, there has been an attempt to regulate the same.
In 2018, the Reserve Bank of India (RBI) issued a circular forbidding banks and other financial institutions from trading and dealing in and administering services that facilitate dealing in digital currencies. However, in March 2020, the aforesaid Circular was struck down by a three-judge bench of the Supreme Court of India for being unconstitutional. As per the Supreme Court, since there’s no ban on cryptocurrencies, cryptocurrency exchanges should not be denied access to banking and payment facilities.
This verdict of the Supreme Court may have brought temporary relief to cryptocurrency users, traders, dealers and exchanges in India, but the future of the legislative framework regulating cryptocurrencies in India is yet to be seen.
The ongoing budget session of the parliament is expected to consider a bill titled, “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”. The Bill intends to ban all private cryptocurrencies in India and replace it with an official digital currency to be issued by the RBI.
India has vast potential as far as trading cryptocurrencies is concerned considering its progress in the blockchain domain, as most of the organisations have adopted the nuances of digital currencies. The Indian market is filled with opportunities for investors and the economy as a whole. Despite, the aforesaid RBI ban on cryptocurrency trades, several crypto-enthusiasts engaged in peer-to-peer trading. The volume of trades in January 2020, merely two months before the ban was lifted by the Supreme Court was over 3 million USD, and over 23,000 transactions constituted an 11% month-over-month increase. This goes to show that, despite the absence of government support, Indians still felt a growing need to continue trading in digital currencies.
As a result, a blanket ban on all private cryptocurrencies would adversely affect not only the investors but the entire Indian economy as a whole. It will hamper the progress that has been made in the country’s financial and technological ecosystem. India has a vast potential to generate widespread employment opportunities with cryptocurrencies and blockchain technology in place. The right amount of awareness and education will go a long way in leading to a stronger digital economy.
Conclusion
The adoption of digital asset trading via several platforms is growing at an ever-increasing rate all around the world. Increased technological advancements including well-equipped security systems indicate the potential for the rapid growth of digital asset trading platforms. Nevertheless, the lack of adequate knowledge and awareness regarding the technical nature and benefits of digital assets makes acts as an obstacle in the growth of the digital economy. Moreover, the Indian government’s indecisiveness in framing adequate regulations and policies to deal with digital assets is a major cause in hampering its growth. It would therefore be prudent for the government to consider adopting a phased approach in regulating digital assets instead of considering a blanket ban on the same.
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