Cross-Border Trading

Cross-border trading is a practice that involves engaging in international markets using local currencies and counterparties. It offers unique opportunities for investors to access global liquidity, minimize slippage, and exploit price differences between local and international markets to generate returns.

In traditional financial markets, investors are often limited to trading within their own country’s markets. However, cross-border trading enables investors to access markets in other countries, allowing them to trade in different currencies and against local counterparties. This opens up a whole new world of trading possibilities, such as capitalizing on pricing discrepancies and arbitrage opportunities.

Let’s consider an example to understand cross-border trading better. In the past, if you had an account at a U.S.-based cryptocurrency exchange, you could only trade in BTC/USD. This limitation restricted your trading options to a single currency pair. However, with the emergence of cross-border trading platforms, you can now access markets in other countries and trade in their local currencies. For instance, you can now trade BTC/JPY or BTC/EUR, expanding your trading options and potentially increasing your profitability.

One of the key advantages of cross-border trading is that it 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 (Know Your Customer) 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.

What is Understanding the Mechanics of Cross-Border Trading?

The mechanics of cross-border trading involve a straightforward process. Crypto exchange providers obtain licenses to operate in multiple countries, ensuring compliance with 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.

For example, let’s say you are a trader based in the United States, and you want to access the Japanese cryptocurrency market. With cross-border trading, you can simply sign up for a crypto exchange that offers cross-border trading and gain access to the Japanese market with your U.S. account. This simplifies the process and eliminates the need for separate accounts on different exchanges.

When engaging in 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. This allows you to trade efficiently while complying with your native country’s privacy policies and financial regulations.

What are the Advantages of Cross-Border Trading?

Cross-border trading offers several unique advantages for investors, making it an attractive option for those looking to expand their trading opportunities:

• Vast liquidity: Liquidity plays a crucial role in trading, as it measures how easily you can convert or exchange your cryptocurrency. Cross-border trading provides access to a larger market, allowing you to view and analyze multiple pairs in your native currency. This increased liquidity offers more opportunities to maximize returns and execute trades with minimal slippage.
• Price disparities/arbitrage: The price of digital assets can vary across different exchanges, especially when multiple currencies are involved. To take advantage of these price differences, traders would typically need to 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. For example, the “Kimchi premium” refers to the price difference of cryptocurrencies in South Korea compared to other countries, allowing traders to exploit this arbitrage opportunity.
• Different counterparties: Each jurisdiction exhibits different trading behaviors and market conditions. Cross-border trading allows investors to explore new strategies for generating returns by leveraging their knowledge of these different patterns and behaviors. For instance, if you have expertise in the Asian cryptocurrency market, cross-border trading enables you to capitalize on trading opportunities and insights specific to that region.

Overall, cross-border trading offers a gateway to global markets, enabling investors to diversify their portfolios, access greater liquidity, and take advantage of price disparities. By utilizing the opportunities provided by cross-border trading platforms, traders can expand their trading horizons and potentially enhance their profitability.

Author: Joel Edgerton, currently a part of the Board of Directors of bitFlyer Holdings, Inc. and the COO and head of the 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.