Currency exchange is a common need for people who work, travel or study in another country. It’s also a challenge for businesses that deal with currencies from throughout the world. The need for better security and scalability of the digital currency makes it very challenging to provide consistent and secure money exchange services. Digital currency is not backed by any central authority or institution, so no entity regulates or keeps track of its circulation and use. That means currency exchange services are exposed to volatility based on external variables such as market interest rates, capital flows and government policies. In addition, the growing number of cryptocurrencies adds a layer of complexity to the transactional process. There are now thousands of digital currencies in circulation which can make tracking transactions difficult and potentially leave business providers open to fraudsters. With these factors in mind, what are some ways that companies can improve their money exchange operations? Let’s explore…
Advanced security with an exchange platform
Let’s start by improving security with an advanced exchange platform. The most secure and optimized way to handle digital currency transactions is with an advanced, state-of-the-art platform. A service that offers an open exchange architecture to integrate with external APIs is a good fit for obtaining compliant financial data for your business. The key benefit of an advanced exchange platform is that it allows you to manage large volumes of customers and transactions. A key advantage of a digital currency exchange platform is the ability to manage all regulatory requirements by imposing risk-based controls on the platform. This includes an advanced audit trail and reporting system.
Automate routine tasks with APIs
Another way to improve security is by automating routine tasks with APIs. For example, it is possible to have automated account opening and verification procedures with APIs. The exchange business also benefits from integrating with external APIs to reduce the load on the cash handling system by handling customer data loads. This saves the time required to handle volumes of cash manually. Automated account opening and verification procedures also reduce the risk of customer fraud. This is because it’s easier to detect fraudulent activity when automated processes are used. Another useful API for an exchange platform enables the platform to communicate with a liquidity provider. This is extremely useful for market makers that want to access real-time rates for order matching. It also helps traders with single-booked orders.
Build a strong exchange rate database
An exchange platform serves as the customer hub for all customer data. That includes the exchange rate database which stores all exchange rates for each currency used in the business. The exchange rate database is a critical component of an advanced exchange platform. It’s important to customize the database for your business to ensure that it provides the best performance for your specific transaction rates. The exchange rate database also needs to be scalable to support high transaction volumes. A good way to build a strong exchange rate database is by building your own or by using an open-source database platform. An open-source database that is built for business requirements can provide greater agility and performance than custom-built databases. You also have the option of using an exchange-as-a-service model to scale your database.
Improve liquidity for traders and market makers
When you offer digital currency services, you need to make sure that you have a reliable and liquid exchange rate with the right quality for each trade. It’s also essential for an exchange platform to be liquid enough to handle high trade volumes. Another important aspect of liquidity is the ability to hedge the exchange rate risk associated with foreign exchange trading. You can hedge the exchange rate risk by entering into an interest rate swap arrangement with a partner financial institution. A good solution for improving liquidity is to use a real-time liquidity provider. This can help you find liquidity partners that can offer real-time market quotes. You can also use APIs to connect to a real-time liquidity provider. This can improve your liquidity and make it easier to find liquidity partners.
Conclusion
Digital currency exchanges face significant challenges when it comes to managing the risk associated with managing money. Fortunately, some solutions can help businesses increase security and improve liquidity for their operations. These include building an exchange platform with an open architecture, integrating with APIs, and using a real-time liquidity provider.
Article inspired from the educational crypto hub: https://bhero.com/blog/category/investing-in-cryptocurrency
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