What is exchange?

A platform where cryptocurrencies are bought and sold.

Exchanges may be cex or dex. Which exchanges you can use depends on where you live; see the exchange directory. The word covers arrangements that work very differently, from a company holding your money and matching orders on its own book to a set of contracts that never take custody of anything.

The assumption worth discarding is that exchanges are interchangeable. Two venues listing the same asset can differ by a factor of five on cost, offer entirely different liquidity, and be legally unavailable to you depending on your address. Which one you use is usually a bigger decision than which day you buy on.

How it works

A centralized exchange takes deposits, records balances in its own database, and matches buyers against sellers on an order book. Trades between customers do not touch a blockchain at all; only deposits and withdrawals do. You verify your identity through kyc, the exchange holds the assets as a custodial service, and your claim is a balance on its books rather than coins you control.

A decentralized exchange is a set of contracts. It cannot accept government currency, it does not verify identity, and it never holds your funds, which also means nobody can help you if you make a mistake.

Three things determine the real cost of a purchase:

The fee is the part everyone compares and often the smallest of the three on a small order, particularly when buying through an instant buy product rather than placing an order.

Example

Illustrative arithmetic on a $500 purchase. At a 0.40% taker fee you pay $2. A 5 basis point spread costs another $0.25 if you cross it. A card deposit charging 2% adds $10. Total is $12.25, of which the trading fee is a sixth. Funding by bank transfer instead and placing a limit order that rests on the book removes both the card charge and the spread, leaving the trading fee alone, which at an illustrative 0.25% maker rate is $1.25.

Why it matters when you buy

Availability, cost, and the assets listed all change from venue to venue and from country to country, and picking on brand recognition alone routinely costs more than it needs to. Compare rates at the fee comparison, measured depth at the liquidity pages, and what you can actually open an account with at the available-in pages.

Related terms

cex — the custodial kind, dex — the contract-based kind, broker — a simpler quoted-price route, order book — how orders are matched, maker taker fee — the pricing model, kyc — the identity check on custodial venues.

Questions

Which exchange should I use?

That depends on where you live, what you want to buy, and how you plan to pay, because availability and cost vary widely on all three. Start with what is legally available at your address, then compare cost on the asset you actually want.

Is my crypto safe on an exchange?

It is as safe as the company holding it, its custody arrangements, and its regulator. Assets you do not control are exposed to the venue's solvency and conduct, which is a different risk from the asset's price.

Do I have to verify my identity?

On any custodial exchange handling government currency, yes, in every major jurisdiction. Decentralized venues do not check identity but cannot take fiat and offer no recourse.