What is Exchange

Beginner

6m March 31, 2023

A crypto exchange is an online marketplace for trading crypto assets, such as $ETH, $BTC, and $DOGE. It functions similarly to a traditional stock exchange, allowing users to create different order types to buy or sell crypto assets. However, a crypto exchange differs from a traditional exchange in many aspects, including asset categories, operation hours, regulatory requirements, etc.

Major Differences between Crypto Exchange and Traditional Exchange

Asset Categories

One of the most significant differences between crypto and traditional exchanges is the asset categories they deal with. Traditional exchanges trade in company stocks or shares, while crypto exchanges trade in crypto assets like cryptocurrencies, perpetual contracts, structured products, etc.

Operation Hours

Traditional exchanges have fixed opening and closing times; no trading is allowed on closed days. In contrast, crypto exchanges are open 24/7, 365 days a year, and can trade at any time.

Regulation

Stock exchanges have strict regulatory requirements and are regulated by government agencies, requiring users to trade in their real names. On the other hand, decentralized exchanges are generally not subject to regulation and can start trading without any certification.

Types of Crypto Exchange

Generally speaking, crypto exchanges are classified in two ways:

With or without intermediaries: CEX & DEX
The type of trading assets: Spot & Derivatives

Centralized Exchange CEX

A centralized exchange (CEX) is run by a central authority (a middleman or a third party). It is similar to a traditional bank in the real world, acting as an intermediary to help users custody and trade crypto assets. A centralized exchange generally requires identity verification (KYC) before trading and is regulated by the local policies of the place of registration. Some of the well-known centralized exchanges include Binance, Coinbase, and OKX.

For more information, you can check out “What is CEX”

Decentralized Exchange DEX

A decentralized exchange (DEX) is a peer-to-peer marketplace where users can trade crypto assets in a non-custodial manner without the participation of an intermediary. It uses smart contracts to facilitate the exchange of assets. DEX usually does not require any identity certification before trading and does not regulate by local policies. It only requires a crypto wallet to begin trading. Some well-known centralized exchanges include Uniswap, Pancakeswap, and Curve Finance.

For more information, you can check out “What is DEX”

Spot Trading

Spot trading is trading crypto assets at the current market price for immediate delivery. When a transaction succeeds, the buyer and the seller deliver the assets immediately. Spot trading is limited to transactions between assets on the spot. It does not support margin and leverage. Currently, the spot exchange with the largest trading volume is Binance.

Derivatives Trading

A derivative in the crypto field is a tradable financial instrument that derives value from an underlying crypto asset. It allows traders to get exposure to the price movement of an asset without actually owning it. Two common types of crypto derivatives are futures and options. Derivative trading in the crypto field typically involves long/short, leverage, margin, perpetual futures, etc. Some of the well-known derivative exchanges include Binance, OKX, and GMX.