TL;DR

Peer-to-peer (P2P) trading is the direct buying and selling of cryptocurrencies among users without intermediaries. P2P exchanges connect buyers and sellers and provide a layer of protection with escrow services, feedback / rating systems, and dispute resolution.

The advantages of P2P trading include global accessibility, multiple payment options, zero transaction fees, personalized offers, and opportunities for profit. However, it also has drawbacks, such as slower trading speeds and less liquidity than centralized exchanges (CEXs).

Introduction

P2P cryptocurrency trading is a method of buying and selling cryptocurrencies directly between users without the need for a central intermediary. Users can use a P2P exchange to access a global marketplace, multiple payment options, and personalized offers. However, P2P trading also has its drawbacks, such as slower trading speeds and lower liquidity. In this article, we will discuss the pros and cons of P2P trading and how it can be used to make profits.

What Is P2P Trading?

P2P crypto trading refers to the direct buying and selling of cryptocurrencies among users, without a third party or an intermediary. This is unlike buying and selling cryptocurrencies using a CEX, where you cannot transact directly with counterparties.A CEX would use charts and market order aggregators to gauge the current market prices and determine the optimal time to buy, sell, or hold your crypto. When you are ready to buy or sell, the exchange enters your order into its order book and facilitates the transaction on your behalf. Depending on the type of order you use, effects such as slippage may mean that you don’t get the exact price you wanted.

P2P trading, on the other hand, gives you full control over pricing, settlement time, and whom you choose to sell to and buy from.

How Does a P2P Exchange Work?

Think of a P2P exchange in the same way you might with Facebook Marketplace — they are similar in that they both connect buyers and sellers. However, buying or selling something on Facebook Marketplace can be tricky as the counterparties are strangers and it’s difficult to establish trust.

What happens if the seller receives payment, then proceeds to block the buyer and not mail them the product that they purchased? In this instance, the buyer loses money due to fraud.

P2P exchanges aim to not only connect buyers and sellers, but also provide them with a layer of protection by securing transactions and reducing the risk of fraud. Buyers and sellers can browse crypto ads and post their own ads while enjoying this protection, made possible by feedback and rating systems.

In addition, the P2P exchange uses escrow to secure the crypto being bought and sold until both parties have confirmed the transaction. For example, if you are selling Bitcoin for fiat money, Binance will escrow your Bitcoin (BTC). Once you receive the fiat money, you can confirm the transaction and the BTC will be released to the buyer's wallet.

If either party is dissatisfied with the transaction, they can file an appeal to resolve the issue with the counterparty, or have Binance Customer Support step in. Do note, however, that the appeal must be filed during the order process, while the order is still pending.

Advantages of P2P Trading

Global marketplace

One advantage of using a local P2P Bitcoin exchange is that it gives you access to a global market of cryptocurrency buyers and sellers. For example, some P2P exchanges are accessible in hundreds of countries, allowing you to buy and sell cryptocurrencies with people around the world in a matter of minutes.

Multiple payment methods

Traditional exchanges may not offer as many payment options as P2P exchanges. For example, Binance P2P offers over 700 payment methods. This includes in-person cash payments, which can be useful for those who prefer face-to-face transactions or those without access to a bank account.

Zero trading fees for takers

While some cryptocurrency exchanges charge a fixed fee or percentage per trade, others allow traders to connect and conduct transactions for free — be sure to check the terms and conditions before deciding on a P2P exchange. 

Secure transactions via escrow

As mentioned above, some cryptocurrency exchanges use escrow services to protect both buyers and sellers. When choosing to secure a transaction with escrow, funds are held by the exchange and released only when the terms of the transaction are met by both parties.

Transactions must be completed within a certain time frame; if the user doesn't make the fiat payment within the specified time, the order is canceled and the cryptocurrency is returned to the seller's wallet.

Personalized offers

Sellers have complete control over the selling price, exchange rate, payment method, and how much they are willing to sell per transaction. The same is true for buyers (buying price, payment method, and how much they are willing to spend per transaction). As long as both parties agree, a deal can be struck.

Disadvantages of P2P Trading

Slower trading speeds

While a P2P transaction can be conducted almost instantly once both parties have confirmed the transaction, one party might delay the transaction for various reasons. With traditional trading, you don't have to wait for the buyer or seller to confirm the transaction before you can move on.

Low liquidity

P2P exchanges naturally have lower liquidity than CEXs due to the nature of the process. For this reason, larger traders who need to complete major transactions may prefer to use over-the-counter (OTC) trades, or buy / sell via the standard exchange.

How Do People Make Money Trading P2P?

P2P trading is a convenient way to invest in cryptocurrency. Not only does it allow you to buy or sell cryptocurrency directly with others, it also lets you avoid some of the transaction fees associated with traditional exchanges. Here are three ways to earn money with P2P trading:

Arbitrage with fiat

P2P trading provides arbitrage opportunities with fiat money. With over 100 fiat currencies to choose from on Binance, you have the opportunity to take advantage of the price differences between these fiat currencies.

Arbitrageurs start by calculating the price differences, as well as the potential profits they can earn, before making any purchase. Below is an example of how you can leverage price differences.

Trading BTC/USD: If the buy price is $21,000 or €23,100 (the US dollar and EUR market have different prices) and the sell price is $20,800 or €22,880, you will lose $200 (sell price - buy price) if you buy Bitcoin and immediately sell it back in USD.

Trading BTC/EUR: If the buy price is €23,500 or $21,364 and the sell price is €23,300 or $21,182 you can make a profit of €200 by purchasing Bitcoin with USD, then selling it for EUR.

The above example shows that if you buy and sell only on the domestic market, you will take a loss. However, if you buy BTC on the US market and sell it for EUR, you will make a profit of €200.

Arbitrage between different exchanges

P2P trading provides plenty of opportunities for arbitrageurs, because there are often significant price differences between exchanges. Using P2P trading to buy and sell crypto assets, you can take advantage of these differences to earn a profit.

You can arbitrage between different exchanges if the opportunity arises. An arbitrageur usually executes this strategy through the purchase and sale of the same asset to profit from its price difference on different exchanges.

For example, if Bitcoin sells for $21,000 on exchange A and $21,100 on exchange B, you can buy it on A and immediately sell it on B for a profit of $100 per Bitcoin.

Publish buy and sell ads

This method allows you to post an ad on a P2P trading platform, featuring the asset you are interested in buying or selling and the price at which you’re willing to transact. Once your ad is posted, other platform users who see it will then decide if they want to trade with you.

If another P2P user decides to trade with you, he will send you a trade request. Once you accept the request, both parties can complete the trade. Choosing to set a higher price than the market price will ensure that you generate more revenue.

For example, you can publish an advertisement to purchase Bitcoin at $20,000 and another advertisement to sell Bitcoin at $20,200. This way, you can earn $200 for every 1 Bitcoin that you transact.

Is P2P Trading Safe?

P2P trading is generally safe but this usually also depends on the exchange and the safety measures it has in place. While older P2P exchanges came with higher risk of theft and scams, many newer P2P trading platforms have greatly improved their security measures.

A leading P2P exchange today will have an escrow service, regular security updates, and a stringent identity verification process (among other measures) to keep users safe. However, even with robust safeguards in place, all trading activity comes with risks — and P2P trading is no exception.

Closing Thoughts

P2P cryptocurrency trading is a way to buy and sell cryptocurrencies without involving intermediaries. With P2P trading, you control the prices, counterparties, and timing of your transactions. It can be likened to Facebook Marketplace but with an added layer of security through feedback systems, ratings, and escrow services.

This global marketplace provides access to a variety of payment options, including in-person cash transactions. While P2P transactions can be slower and less liquid than those on CEXs, those willing to wait and who want personalization in their trades can benefit from the arbitrage and profit opportunities P2P trading offers.