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Exchange

In simple terms

A website or app where you can buy and sell cryptocurrencies, similar to a currency exchange at an airport where you trade dollars for euros. You deposit money, place an order for the crypto you want, and the exchange matches you with a seller.

Definition

A platform where cryptocurrencies can be bought or sold.

In depth

A platform that facilitates peer-to-peer or order book-based trading of cryptocurrencies by maintaining custody of user funds in hosted wallets, matching buy and sell orders, and executing transactions on the underlying blockchain. Centralized exchanges (CEX) operate order matching engines off-chain for speed and liquidity, then settle final transactions on-chain, while decentralized exchanges (DEX) use smart contracts and liquidity pools to enable non-custodial trading directly from users' self-hosted wallets.

How does Exchange work?

An exchange collects orders and matches them. Buyers post bids and sellers post asks, each with a price and a size, and the matching engine pairs the highest bid with the lowest ask whenever the two cross. A limit order rests on the book until someone trades against it; a market order takes whatever prices are already available, so its fill depends on how deep the book is. The venue updates both sides' balances and charges a fee, usually lower for the resting order. Centralized venues settle in their own database, decentralized ones settle on-chain.

An example

A trader places a limit order to buy 0.5 units of an asset at an illustrative $200, committing $100. A resting sell order offers 2 units at $200. The engine matches 0.5 units, so the buyer pays $100 plus a 0.1 percent taker fee of $0.10, and 1.5 units of the sell order remain on the book for the next buyer. Figures are illustrative.

Figures are illustrative only.

What beginners get wrong

  • Balances left on an exchange are claims against a business. If that business fails or is hacked, recovering customer assets can take years or not happen at all.
  • Market orders in a thin order book can fill well away from the quoted price, and the difference is often much larger than the trading fee.
  • Withdrawal costs and network choice are easy to skip past, yet selecting the wrong network for a withdrawal frequently makes the funds unrecoverable.
  • Registration or a licence does not mean deposits are insured the way bank deposits are; protections vary by jurisdiction and are worth checking directly.

Related terms

Part of

How do you buy cryptocurrency safely? — the subject page for buying crypto, with all 15 of its definitions in one place.

Educational only — not financial advice.