ChangeNOW’s Fixed and Floating Crypto Exchange Rates

An exchange rate is a self-explanatory term pulling roots from the traditional financial and stock markets. In terms of cryptocurrency, it describes how many tokens you can get based on the number of tokens that you own and want to exchange for another cryptocurrency. It basically compares the value of one cryptocurrency to the value (or price) of another one since crypto assets are rarely trading at the same price.

For instance, if you’d want to exchange some ETH for XRP right now, you’d be getting 5,257 XRP coins for 1 ETH (thus, the exchange rate would be 1:5,257 in this case).

There are two types of exchange rate mechanisms in crypto – fixed and floating. Most exchanges use a single exchange rate while a few ones let the user decide between the two.

As you can already guess, each rate provides different benefits, and today, we are going nitty-gritty into each so you can know when and why it is better to use one over another. ChangeNOW is a popular crypto exchange that supports both exchange rates and we’ll be using it as an example throughout the text.

What Is a Fixed Exchange Rate, Exactly?

A fixed (also known as a pegged) exchange rate is the one that remains the same (it is basically locked) regardless of what is happening on the crypto market during the transaction processing time.

That means that exchanging one crypto for another at a fixed rate with ChangeNOW can help a lot with avoiding volatility risks that regularly occur during transactions. So, fixed exchange rates take the guesswork out of trading and produce predictable outcomes. Obviously, the main advantage of a fixed rate is that it is a hedge against price fluctuations and sudden drops that happen all the time in crypto.

Keep in mind that you don’t get any extra coins in case you stick to the fixed exchange rate, even if the rate changes in the meantime. It oftentimes happens that the market switches to an uptrend/downtrend during the transaction but this would have nothing to do with you and the amount of crypto you would get would stay the same.

If you want to exchange some crypto on the ChangeNOW platform (no matter if you are accessing it from your desktop or via mobile app) and you choose a fixed rate, you will know the rate in advance since it will be displayed to you at the beginning of the exchange process.

Choosing the fixed exchange rate, you have 20 minutes to make a deposit and exchange the funds. ChangeNOW guarantees that the rate will stay as it is during this time and you can rest assured that you will receive the number of coins that was initially shown.

The biggest drawback of the fixed exchange rate is that it typically involves higher commission fees so you’d be paying a little bit more for just wanting to play it safe.

What Is a Floating Exchange Rate?

A floating or flexible exchange rate (sometimes also called classic or standard exchange rate) is a self-correcting rate that is determined by the free market forces – supply and demand and several other factors. Simply said, if the value of a cryptocurrency is going up and the supply is going down, the exchange rate will follow and increase. Conversely, if the value of a cryptocurrency is going down and the circulating supply is going up, the exchange rate will go down.

A floating exchange rate changes in a matter of minutes, sometimes even within just a couple of seconds (thus the name floating). If you decide to go for the flexible exchange rate, remember that the rate displayed at the beginning of the transaction can drastically change and you may get more or less than you thought you would.

When exchanging one crypto for another with ChangeNOW and going at a flexible rate, the platform will give you an estimate and offer the absolute best exchange rate at that moment. If everything goes well and the market volatility turns in your favor, you can end up receiving a significantly higher amount of crypto than it was initially displayed.

In fact, judging by the feedback, ChangeNOW’s users are typically getting the exact amount of crypto as stated (or even more on certain occasions). Although there are times when volatility strikes (which is totally out of any crypto exchange’s control), it’s still good to know that, most of the time, you know what to expect.

It’s worth mentioning that the transaction fees with the floating exchange rates are typically much lower compared to the fees you have to pay when going for the fixed rate.

Once you have deposited the money and chosen the desired, flexible exchange rate, the exchange service would display the amount of crypto that you would get at the current exchange rate. However, the final amount of crypto in your wallet will probably differ.

A floating exchange rate moves up and down all the time, and compared to a fixed exchange rate, it is far more uncertain. That is why you can also get less than you thought you would – you just never know. One thing is for sure – the floating exchange rate is not for the faint-hearted.

Fixed vs Floating Exchange Rate

There is no right or wrong answer to the question of which exchange rate is better, the fixed or the floating one. Either option can be preferable in certain circumstances. To be successful at trading, you should be able to calculate risks and potential gains and choose the rate accordingly.

Summary

To sum it up, with the fixed exchange rate, you know that you will for sure get the same amount of crypto as displayed at the beginning of the transaction. Although the fixed exchange rate is a guaranteed rate, most of the time, it is less favorable and you won’t be able to get as many tokens as you could.

With the floating exchange rate, there’s some guesswork involved, since there is absolutely no certainty regarding the number of tokens that will be delivered to your wallet after the transaction is processed.

However, if you have the luxury to be able to take risks, you could actually end up with a decent amount of coins in your wallet. It is indeed a great thing that ChangeNOW allows users to make a choice between the fixed and floating rates based on their preferences and risk tolerance every time before they perform a transaction.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes