Cross-Border Trading

November 21, 2023 - Around 4 mins mins to read

Understanding Cross-Border Trading

Cross-border trading refers to the practice of engaging in international markets using local currencies and counterparties. This type of trading offers unique opportunities for investors, allowing them to take advantage of global liquidity, minimize slippage, and exploit price differences between local and international markets to generate returns.

Financial markets and trade finance enable cross-border trading, allowing investors to trade globally across international markets using local currencies and often against local counterparties. This approach provides several advantages for investors seeking unique trades, such as capitalizing on pricing discrepancies and arbitrage opportunities.

In the past, traders from different countries faced limitations when participating in markets available in other countries. For instance, if you had an account at a U.S.-based crypto exchange, you could only trade in BTC/USD. However, the emergence of cross-border trading platforms has made it easier to access markets in other countries and their local currency liquidity, such as BTC/JPY, BTC/EUR, and more.

Cross-border trading allows traders to access major spot trading pairs available across licensed countries. As long as your exchange adheres to international regulatory standards and complies with local KYC and anti-money laundering laws, you can trade in these international markets using their local currency against foreign counterparties with just one local trading account. This eliminates the need for multiple sign-up processes or registrations on numerous exchanges, avoiding unnecessary hassles, delays, and the risk of application denial if you don’t reside in the local jurisdiction.

Understanding the Mechanics of Cross-Border Trading

Cross-border trading involves a straightforward process where a crypto exchange provider obtains licenses to operate in multiple countries while adhering to each country’s financial regulations.

By enabling cross-border trading, crypto exchanges create a truly global trading platform, allowing registered users from different countries to benefit from the scalability, depth, and liquidity of a single marketplace. Traders can sign up for the exchange and access liquidity pools and spot trading pairs from all licensed countries.

With cross-border trading, you can invest your fiat currency in global trading marketplaces and benefit from the minimal spread between the buy and sell prices of cryptocurrencies while complying with your native country’s privacy policies and financial regulations.

The Advantages of Cross-Border Trading

In addition to accessing global markets, cross-border trading offers several other unique benefits, including:

Vast liquidity: Liquidity is crucial in trading as it measures how easily you can convert or exchange your crypto. Cross-border trading provides access to a larger market, allowing you to view and analyze multiple pairs in your native currency and offering more opportunities to maximize returns.
Price disparities/arbitrage: The price of digital assets can vary across different exchanges, especially when multiple currencies are involved. To take advantage of these differences, you could open accounts on multiple exchanges. However, centralized exchanges offering cross-border trading grant access to several markets from a single dashboard, enabling the implementation of arbitrage strategies through one account. The “Kimchi premium” is a famous example of this.
Different counterparties: There are numerous crypto marketplaces worldwide, with Asia contributing significantly to retail trading activity. Each jurisdiction exhibits different trading behaviors. Cross-border trading allows investors to explore new strategies for generating returns by leveraging their knowledge of these different patterns and behaviors.

Author:

Joel Edgerton, currently a part of the Board of Directors of bitFlyer Holdings, Inc. and the COO and head of global business planning office of bitFlyer USA, Inc., has over two decades of experience in leadership roles across prominent global organizations. He holds an International Master of Business Administration (MBA) degree from South Carolina University, specializing in finance and Japanese. Joel also has a keen interest in cryptocurrency and leads the bitFlyer team in expanding its global dominance using blockchain technology.

Connect with Joel on Twitter.

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