A decentralized market utilizes a digital platform to allow traders to trade directly between themselves, rather than through a traditional centralized exchange.
Company stocks that are traded through stock exchanges such as the Nasdaq, the NYSE, or LSE, would be an example of centralized markets or exchanges. Whereas, foreign currencies that can be traded directly between buyers and sellers via a digital platform are an example of a decentralized market.
One of the major advantages of a decentralized market is that should part of the system go down, the remainder of the network is still able to trade as normal. Also, a decentralized platform is managed on a peer-to-peer basis, and therefore, third parties do not have access to any information. This helps to maintain traders’ privacy and the security of their data.
Digital or cryptocurrencies are decentralized currencies, that allow a buyer and seller to trade without the need for a bank. Because they are not dispensed by a central bank such as the bank of England or the federal reserve, their value is deemed to be less susceptible to manipulation via a nation’s monetary policy.
Key takeaways:
- A decentralized market allows traders to trade directly with others, without the need for a central meeting place.
- Examples of decentralized trading instruments are foreign exchange currency pairs.
- A major benefit of decentralized markets includes greater protection of privacy and personal data.