What is a Crypto Exchange?
What is a Crypto Exchange & How Does it Work?
Cryptocurrency exchanges are online platforms that allow users to buy and trade cryptocurrencies like Bitcoin and Ethereum. You can trade using cryptocurrencies you already own or purchase using traditional local currencies . Before you start playing and gambling with crypto at Stake , it's important to understand how cryptocurrencies work and how to use them.
What is a Crypto Exchange?
A cryptocurrency exchange is like a marketplace for trading digital assets, including cryptocurrencies. These digital platforms match buyers with sellers. They allow users to buy cryptocurrency , as well as sell and trade it like a traditional stock exchange, you can follow charts to see the current price movement and use tools such as market orders and limit orders.
When you make a trade request at an exchange, your request needs to be filled by another user for it to be completed. For example, if you want to buy 1 ETH, you can check the current market price and then enter the amount you’d like to pay for your ETH. If other users are selling ETH for that price, your order will be completed.
Before using an exchange, you’ll need to sign up and verify your identity. Once your account is set up, it’s possible to transfer your crypto from crypto wallets to the exchange to sell or trade it. You can also purchase digital currency directly with fiat currencies.
Types of Cryptocurrency Exchanges
There are a few different types of cryptocurrency exchange, although most exchanges can be grouped into one of two categories:
Centralised Cryptocurrency Exchanges
A centralised exchange (CEX) is a business that acts as an intermediary for traders. The exchange is owned and managed by a central authority, normally a private company, which is responsible for securing user funds and matching orders.
To use a centralised exchange, you’ll need to open an account and verify your identity, as these organisations are required to follow regulations to operate legally. You can then choose from a range of payment methods to add funds or deposit using crypto .
Most centralised exchanges cover a wide range of popular cryptocurrencies and other digital assets. It’s possible to buy and sell assets at the current market price using market orders or set prices using limit orders.
Decentralised Cryptocurrency Exchanges
A decentralised exchange (DEX) is a platform based on blockchain technology that facilitates peer-to-peer trading. The platform itself isn’t owned or operated by an organisation, although third parties may be involved in developing, hosting and securing the platform. Rather than using software, crypto trades are completed using smart contracts on the blockchain .
The lack of a centralised organisation running these platforms means that users can trade without providing their personal details. However, there are many different types of decentralised exchanges, including those that run on different blockchains .
In some decentralised exchanges, trading liquidity is provided by user funds, and prices are determined by algorithms. However, some DEXs still operate with a traditional order book, which allows traders to create bids and ask orders to buy and sell.
Advantages & Disadvantages of Centralised Cryptocurrency Exchanges
Here are some of the main advantages of using centralised cryptocurrency exchanges:
High liquidity – Around 99% of crypto trades take place on centralised exchanges, which means that these platforms typically have far more liquidity available. More liquidity means faster trading, with no need to wait around for ages for your market order to complete.
User-friendly – CEXs are designed to be simple to use, and they’re often streamlined for beginners, with an interface that’s easy to understand. The process of logging into your account, making trades and sending and receiving assets is as straightforward as possible.
Leverage – Some centralised exchanges offer the opportunity to borrow money against the exchange to complete trades. Known as leveraged trading, this can offer higher returns, but it comes with the risk of greater losses if you get a trade wrong.
Regulated – Centralised exchanges are regulated by financial service agencies. This helps ensure that they operate legally and safely, so there’s a higher level of trust, security and reliability.
Customer support - Trusted centralised exchanges offer customer support to provide assistance if you need it. Stake's friendly customer support team is available around the clock should you run in to any issues using crypto at Stake Casino and Sportsbook .
While decentralised exchanges are the simplest and most popular way to trade cryptocurrencies, there are some disadvantages:
Security risk – Even trusted centralised exchanges are still at risk of hacking and bankruptcy. Users of some of the largest cryptocurrency exchange platforms, Mt. Gox and FTX, have experienced a loss of assets due to bankruptcy.
Transaction fees – Most CEXs make money by charging fees on crypto transactions, either for making trades or completing crypto withdrawals .
Advantages & Disadvantages of Decentralised Cryptocurrency Exchanges
Some crypto traders prefer to use decentralised exchanges for these advantages:
Self-custody – When you use a centralised exchange, you transfer your assets to a third party to trade them. With DEX, you simply link your digital wallet to the blockchain and let the smart contracts do their work. This means there’s a lower risk of fraud, hacks or lost assets due to bankruptcy.
Anonymous trading – There’s no need to complete Know Your Customer (KYC) checks to start trading. This means you can buy and sell cryptocurrency completely anonymously.
More varied assets – Some cryptocurrencies are only available to purchase on decentralised exchanges, and there are more options to trade in general, even if the liquidity is much lower.
Centralised exchanges remain the most popular way to trade crypto, as decentralised exchanges still come with the following disadvantages:
No local currency trading – DEXs are good for trading between cryptocurrencies but not for swapping fiat (such as Japanese Yen , Canadian dollars or Indian Rupees and more) for crypto. Although you can use stablecoins, you won’t be able to buy or sell assets for traditional currencies.
Lack of liquidity – Even the most popular decentralised exchanges still feature very low trading volume. This means there’s less liquidity available, and it can be difficult to complete trades quickly.
More responsibility – Having self-custody comes with advantages, but it also means you have more responsibility for your assets. The DEX trading process can be complex. This is why it’s normally best for experienced traders.
How to Choose a Crypto Exchange?
When choosing a cryptocurrency exchange, there are a few things you should look at to ensure the trading process is as smooth and straightforward as possible.
Security
Security should be your number one concern when planning to use a crypto exchange. You want to make sure that the platform you use has a good reputation for securing the assets of its users. Check whether it offers security features such as two-factor authentication to ensure you can keep your account safe. You can read about how we keep crypto safe and secure here at Stake.com.
Licensing
Cryptocurrency exchanges must be licensed and regulated to operate legally in certain areas. Check your local laws before you join an exchange, and make sure that any platform you use is regulated and legal in your country.
Available Cryptocurrency
The cryptocurrencies available to trade will depend on the exchange you use. Most major platforms offer trading on hundreds of currency pairs, though some have more than others. Check that the site supports trading in the cryptocurrency you prefer to use.
Fees
All centralised cryptocurrency trading platforms charge fees which can include trading fees as well as withdrawal and deposit fees. These might be percentage-based, with higher fees for larger transactions, or they might be flat fees that are fixed. Check the type of fees charged by the platform and consider whether they’re reasonable.
User Interface
The user interface of a cryptocurrency exchange should factor into your decision too. How easy is the platform to use, does it offer an app, and are there advanced trading tools available? Choose a platform that you find simple to use and that suits your preferences.
Popular Crypto Coins and Exchanges
There are many different cryptocurrencies available to trade with at crypto exchanges and to purchase using services like MoonPay and Swapped . These can include:
Here are some of the most popular crypto exchanges:
Coinbase
Kraken
KuCoin
Binance.US
Bitfinex
Gemini
Uniswap v3 (DEX)
Cryptocurrency Exchange Tips
Here are our top tips for using crypto exchanges safely:
Pay attention to security – When choosing and using cryptocurrency exchanges, you should be aware of security. Make sure your account is properly secured, and store your funds correctly when not trading them. You can use the Stake vault or store your coins in offline cold wallets for additional security.
Be wary of possible scams – You should be wary of any possible scams, especially phishing emails or messages. Check the address of the sender, and be careful not to click on links from senders you don’t trust.
Consider trading fees – Always consider the fees before you make your trade and consider if you can get your crypto assets for a better price.
Avoid taking unnecessary risks – While the trading of cryptocurrencies comes with risks, that doesn’t mean you have to take unnecessary ones. Make sure you’re using crypto safely and avoid margin trading if you can’t afford it.
Learn more about crypto – If you want to get into crypto and trading cryptocurrencies, you should really take the time to learn about the crypto market and how it all works. You can find plenty of resources on the cryptocurrency market and crypto trading online, as well as right here on the Stake blog.
