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I am new to blockchain and not sure if I am missing something.

  1. When I tried to transfer eth from one wallet(metamask) to another, it is costing me 0.001eth(~5$).
    But when I tried to trade eth for usdt on binance exchange, it is costing me very less. How does binance manage this trade? Isn't trading just two transfers from two parties?

  2. And does trading on decentralized exchange like uniswap also cost the same transaction fee as binance?

  3. Are trading and swapping both the same?

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I am assuming that you mean the centralized Binance exchange when you mention "trade on binance".

Centralized exchanges do not perform every trade on-chain. Rather they update the balances for a trade in their database and only when you withdraw your funds it will be reflected on the blockchain.

When you transfer ETH between to accounts that are not contracts a fixed gas limit of 21000 is applied. When the receiving address is a contract, additional gas might be required.

When you interact with Uniswap (or any other dex) then you are interacting with a smart contract. To perform your trade this contract has to update it's internal state (additionally to performing the transfer), therefore additional gas costs incur. the interesting part is that these costs are (nearly) the same no matter the amount you trade.

So if you perform small trades it is most likely always cheaper to use a centralized exchange, while for large trades the difference is probably less significant. BUT by using a centralized exchange you are not in full control of your funds (e.g. it is not self-custodial) and you need to trust the exchange.

Regarding is "trading and swapping the same": I would say every swap is a trade, but not every trade is a swap :D

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  • "When the receiving address is a contract, additional gas might be required."--is this additional gas proportional to the complexity of smart contract execution? If yes, how do I know how much additional gas I have to pay even before the transaction?(..as metamask prompts the transaction fee even before the transaction) Jan 6, 2022 at 11:03

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