I often see posts about how the exchange cheated or took money for itself, etc., especially from newbies who lost their deposit and start yelling that all their money went to the exchange!
Below I described where your money goes and how the exchange makes money
### Who gets the money when traders lose their deposit on the exchange?
When traders lose their deposits on exchanges like Binance, the money does not automatically go to the exchange. Here are the main points to consider:
1. Other traders: In most cases, the money goes to other traders. Financial markets are essentially a zero-sum game, where one trader's gain is offset by another's loss.
2. Market and liquidity: In volatile market conditions, money can 'disappear' due to changes in asset values. For example, during a sharp price drop of an asset, its market value decreases, and money essentially evaporates in the market.
3. Brokers and market makers: Sometimes brokers or market makers can receive part of the funds through spreads or commissions for executing orders.
### How does the exchange make money?
Exchanges like Binance make money through several key points:
1. Transaction fees: The main source of revenue for exchanges is the fees for executing trading operations. For each purchase or sale of assets, traders pay a small percentage of the transaction amount.
2. Token listings and ICOs: Exchanges may charge fees for listing new cryptocurrency tokens or for conducting ICOs (Initial Coin Offerings) on their platform.
3. Liquidity pools and margin trading: Exchanges earn from interest by providing liquidity and offering margin trading, where traders take loans to increase their positions.
4. Additional services: Services such as staking, derivatives, futures, and other financial products also generate revenue for the exchange.
### How does the exchange earn from futures?
1. Trading operation fees: The main source of income is the fees for opening and closing positions. The exchange charges a small percentage of the transaction amount for each operation.
2. Financing and margin requirements: Exchanges offer traders margin trading, providing loans to increase positions. For this, they charge interest. For example, Binance has a financing system for futures contracts, where traders pay interest for holding positions.
3. Liquidation fees: If a trader's position reaches the liquidation level (i.e., losses exceed the available margin), the exchange may charge an additional fee for liquidating the position.
4. Additional services and products: Exchanges offer various futures products, including perpetual contracts and contracts with a fixed expiration date. Additional fees may apply for using these products.
### Example
Imagine you open a position in the futures market for $10,000 with a trading fee of 0.05%. This means the exchange will earn $5 on this transaction. If you hold the position using margin, the exchange will also earn from interest rates.
### Important notes
- Technical failures and manipulations: Sometimes technical failures or manipulations can cause suspicions among users. In such cases, it is important to seek help from support and follow their recommendations.
- Education and preparation: Especially for beginners, it is important to understand the risks and features of trading. Financial education helps reduce the risk of losses.
Conclusion: Exchanges are intermediaries and platforms for trading, and their income is built on commissions and additional services. The funds that traders lose are usually redistributed among other market participants. I hope this article helped you understand the mechanisms of how exchanges work and the distribution of funds.
Wishing everyone well!
