Basics of Trading and Finance (Part 03) : Problem with the fund management in Centralized Exchange
Intro
IntroAs a moderator of the Tron Fan Club community, I regularly write various tutorials on crypto blockchain and Tron related matters. The main purpose of these tutorials is to make our new users aware of these topics. In continuation of that I am writing tutorials on trading and finance. Hope you can easily learn some details of trading and finance through this tutorial series.
Fund management is a very important issue. Many people have accounts in all the institutions in which trading or transactions take place. That is, each trader has a separate account and wallet. A buyer or seller always wants to keep a certain amount of currency in his wallet because he will need those currencies when he goes to buy or sell. Because we know that in the world of trading we sell one currency and buy another currency. So in case of buying and selling any currency, you must trade one currency instead of another. And that's why if the wallet is checked, it will be seen that some amount of different currencies are deposited in everyone's wallet.
The higher the trading volume and number of users of an exchange site, the higher the amount of currency deposited or idle. For a major exchange site, the amount of such currency accumulated in the wallets of the wizards is billions of dollars. Since there is regular buying and selling and trading, this amount of currency will always be deposited with them. Any user can transfer or buy and sell their currencies at any time, but since not everyone will sell all their currencies at the same time or everyone will not buy all the currencies at the same time. So a certain amount of all types of currencies is always stored on the exchange site.
In most cases no benefit is given to the users for this fund. Many exchange sites provide facilities for this but in most cases no additional facilities are provided for unused funds or deposited funds. But a centralized exchange site can use these accumulated or lying funds for various purposes if desired. Because, they are not obliged to provide any account of such funds to their users. When the exchange site is centralized, the decision of the owner will be considered final here, although there will be a matter of local laws and regulations. However, since the decision comes from one or some group of people, they can manipulate many things to show their side.
In the past and in the present, it has been heard that exchange sites have tried to make huge profits by using such funds as investments elsewhere. Those exchange sites cannot return funds to their users when they fail to make a profit. And then disaster strikes and the Wizards can no longer repay the fund. As a result, the site was closed. In recent times we have seen such cases where potential centralized exchange site who were very popular and influential have collapsed due to fund manipulation.
Basically according to the regulation, exchange site should never use these funds on behalf of any user of their site because they do not own these funds and users have not delegated any ownership or authority to the exchange sites to use these funds. But this will be possible only when the whole decision comes from one particular party i.e. the centralized exchange system, while avoiding everyone's eyes and pointing the finger at the regulation. Therefore, the effective solution to this problem can be a decentralized exchange (DEX) where the trading will be done through smart contracts.
Great tutorial from you Sir, this is really educative. Thanks for sharing these great ways of finance management in the centralized exchange.