How to run a bitcoin cash exchange for fun and profit

Why to run a cash exchange?

For extra side income, of course! There are definitely already some people earning money by exchanging bitcoins. Also if you are already invested in bitcoin in a way or other, cash exchanges make it easier for people to obtain bitcoins or get rid of them, when they need. Good liquidity helps people to trust bitcoin more, and the more people trust in bitcoin, the more they will value them.

If you work for example in an internet-enabled cafe, it is pretty easy to do bitcoin exchange as a side-job. If you use online payment methods, you can offer payment methods that bigger exchanges don't offer.

Also, even when you are not able to turn out profit, with cash you can probably buy or sell bitcoins directly between users, without fees.

Is there market/demand?

Depends on where you live and what kind of contacts you have. In many countries, it is really cumbersome, slow and/or expensive to send and receive money to/from other countries. By starting a local cash exchange, you can basically compete with companies like Western Union by offering alternative methods for transmitting money internationally.

Some people appreciate the privacy that cash exchanges offer. Buying a small amount of bitcoins with cash is also a great way get started with bitcoins.

Pricing

With localbitcoins.com, it is really easy to create profitable and competitive pricing strategy. For example, you could use pricing strategy like this:

  • Selling: bitstampUSD_ask * 1.05
  • Buying: bitstampUSD_bid * 0.95

More complex example:

  • Selling equation: (krakenEUR_close + localbtcEUR_close + EUR_24h ) / 3 * 1.05
  • Selling equation #2: max(max(localbtcUSD, bitstampUSD), USD_24h)
  • Buying equation: (btceUSD_low + bitfinexUSD_low + USD_24h ) / 3

As parameters you can use any currency averages from bitcoincharts.com, for example USD_30d, EUR_24h, SEK_7d. Also market data can be used by combining the market like bitstampUSD and a parameter like ask, bid, low, high and close.

See all variables from our pricing guide.

Please refer to the Pricing Equation guide for more information.

Instant transactions

You can use the localbitcoins.com transaction service to speed up the trading process. It also nicely removes the need for devices for buyer - just confirmation code is needed. Read more about how the transaction service works.

If traders are using different wallet software, you can use Blockchain.info for checking the confirmations. Mobile usage is cumbersome, but works.

What if I run out of bitcoins/what if I buy too much bitcoins?

You can always resort to a real exchange in a case like that! Of course, you need bank account for this, and you might need to deposit some cash into your bank account. Alternatively you can use otc marketplaces such as bitcoin-otc.com, bitcoin.de and bitcoinary.com.

You can also reflect the demand situation in your pricing. For example, if there is lots of demand, and less sellers, you could use buying price like USD_24h*0.99 and selling price like USD_24h*1.10.

Advertising

Make sure you are easily reachable! In your advertisement, specify your favourite place and time to meet. You can include your cell phone number in the advertisement.

In addition to localbitcoins.com, you can also advertise your cash exchange on facebook, twitter and local forums. There are also other services like localbitcoins.com, where you can advertise. Be warned though, they all suck compared to localbitcoins.com! :)

Risks

All traditional risks that govern money exchanging also relate to bitcoin trading. Please consider the risks carefully, and use the feedback system and other measures to ensure your safety.

Counterfeit money

There have been cases, where counterfeit money is passed to the Bitcoin seller. Please consider using a counterfeit detector when you do the trades.

If doing online bitcoin selling, please read our online selling guide as well.

OK, so what are the first steps?

  1. Sign up if you haven't done already
  2. Post a trade advertisement
  3. Load Bitcoins to your wallet, if you are selling.
  4. Send links to your friends, advertise in social media and locally, wait for the orders to kick in.

Please note: please always study the legislation of your country before starting more professional exchange.

Happy trading!