What Is an Intermediary/Middleman?

An intermediary can be classed as financial institutions such as crypto exchanges, investment banks, financial advisors, credit unions, mutual funds and investment trusts.

Using a financial intermediary brings a number of advantages to consumers — including increased liquidity and enhanced security.

One of the biggest perks of using an intermediary can be lower costs… that said, it is worth bearing in mind that many platforms will also add a margin in order to generate a profit.

Exchanges can normally achieve economies of scale, meaning their transaction fees can be much lower. It can also be a lot easier to sell cryptocurrencies quickly without suffering price slippage.

There can also be downsides to using intermediaries. In some cases, investors may end up holding their digital assets in a wallet on the platform — putting them at risk of losing their funds if the exchange is later targeted in a cyberattack.

Peer-to-peer alternatives such as decentralized exchanges can also offer greater levels of anonymity. In some cases, this will also result in reduced fees.

And then there’s the issue of outages. Some centralized exchanges have had to abruptly suspend withdrawals because of police investigations — leaving investors unable to access their funds. Other platforms have also gained an unwelcome reputation for going offline whenever cryptoassets such as Bitcoin make significant price moves.

It’s important for traders to do their own research before using a middleman, and choose platforms with strong user reviews and a solid reputation generated through years of experience — especially considering that less scrupulous companies can be prone to exaggerating trading volumes to make them seem bigger than they actually are.

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Intermediary/Middleman