How to Trade on Decentralized Exchanges (DEXs): A Step-by-Step Guide

Decentralized exchanges (DEXs) are an alternative to centralized exchanges that allow for peer-to-peer trading of digital assets without the need for intermediaries. Unlike centralized exchanges, which hold users’ funds and are susceptible to hacks and other security issues, DEXs allow users to trade directly from their wallets. 

In this article, we’ll provide a step-by-step guide on how to trade on DEXs.

Step 1: Choose a DEX

There are many DEXs available in the market, each with its unique features and user interfaces. Before getting started, you need to choose a DEX that suits your trading needs. Some popular DEXs include Uniswap, PancakeSwap, SushiSwap, and 1-inch. Research the DEXs available and decide which one will be the best fit for you. You can trade in cryptocurrencies with ProfitEdge.

Step 2: Connect Your Wallet

Once you have chosen a DEX, the next step is to connect your wallet. DEXs allow users to trade directly from their wallets, so you will need to connect your wallet to the DEX before you can start trading. Most DEXs support MetaMask, a popular browser extension wallet, as well as other wallets like Trust Wallet and Coinbase Wallet. Follow the instructions on the DEX to connect your wallet.

Step 3: Fund Your Wallet

After connecting your wallet, you need to fund it with the tokens you want to trade. If you don’t already have the tokens you want to trade, you will need to purchase them on a centralized exchange or from a peer-to-peer platform like LocalBitcoins or Paxful. Once you have the tokens in your wallet, you can proceed to the next step.

Step 4: Find the Trading Pair

On a DEX, trading pairs are represented by two tokens that can be traded against each other. For example, on Uniswap, the ETH/USDT trading pair allows you to trade Ether (ETH) for Tether (USDT). You need to find the trading pair that you want to trade and select it. You can also create your trading pair if it is not already available.

Step 5: Set the Price and Amount

After selecting the trading pair, you need to set the price and amount of the token you want to buy or sell. In a DEX, the price is determined by the supply and demand of the tokens in the trading pair. You can set the price at the current market price or set a limit order if you want to buy or sell at a specific price. You also need to set the number of tokens you want to buy or sell.

Step 6: Confirm the Trade

Before confirming the trade, double-check the price and amount to make sure you are buying or selling at the right price. Once you are sure everything is correct, you can confirm the trade. The DEX will then execute the trade, and the tokens will be exchanged directly between the wallets of the buyer and the seller.

Step 7: Withdraw Your Tokens

After the trade is executed, you can withdraw your tokens to your wallet. You can either withdraw the tokens you just bought or the tokens you received in exchange for the tokens you sold. The process of withdrawing tokens from a DEX is similar to sending tokens from one wallet to another. Simply enter the wallet address you want to send the tokens to, set the amount, and confirm the transaction.

Tips for Trading on DEXs

Trading on DEXs can be a bit more complicated than trading on centralized exchanges. Here are a few tips to help you get started:

Tip 1: Start Small

If you are new to trading on DEXs, it’s always a good idea to start small. Trade with a small number of tokens until you get the hang of the process. This will help you avoid costly mistakes and minimize your risks.

Tip 2: Check Gas Fees

When you trade on a DEX, you need to pay a transaction fee called “gas” to the network. Gas fees can vary greatly depending on network congestion, so it’s always a good idea to check the current gas fees before making a trade. You can use a website like GasNow to check the current gas fees on the Ethereum network.

Tip 3: Use Slippage Tolerance

Slippage is the difference between the expected price of a trade and the actual price at which the trade is executed. In a volatile market, slippage can be significant, which can lead to unexpected losses. To avoid this, many DEXs allow you to set a slippage tolerance, which ensures that your trade is executed at a reasonable price even if the market is moving quickly.

Tip 4: Be Mindful of Liquidity

Liquidity is the number of tokens available for trading in a particular trading pair. Trading on a pair with low liquidity can be risky as it can be difficult to execute a trade at the desired price. Always check the liquidity of the trading pair you want to trade before making a trade.