How Crypto Exchanges Work

Crypto exchanges are a popular and convenient way for users to trade digital currencies. They facilitate transactions between buyers and sellers by matching buyer and seller requests and taking a commission on the transactions that occur.

One of the most important factors is the exchange’s architecture – is it centralized or decentralized?

Centralized exchanges are typically more secure and user-friendly because they’re run by a single company or organization and allow you to buy and sell cryptocurrencies with a single account. This means that the exchange’s administrators have complete control over the platform, and they can make changes or updates at their discretion. This can be good or bad, depending on how you view the exchange’s security.

Centralized exchanges have a single point of attack, which minimizes the risk of cyber-attacks. Second, centralized exchanges offer higher liquidity than decentralized exchanges. This means that they can easily trade large amounts of cryptocurrencies, which is important for ensuring stability in the market.

Finally, centralized exchanges tend to charge higher fees than decentralized exchanges. This is because they have to pay fees to the blockchain platform on which cryptocurrencies are based.


Decentralized exchanges, on the other hand, are not controlled by a single entity. Instead, they’re run by a network of independent traders. This can mean that the exchange is less reliable, and that security is less assured, but it also means that transactions are faster and more open.

While some of the information in this article also applies to the decentralized exchange architecture, the focus is on how centralized crypto exchanges work.

Exchanges offer a range of features to ensure the safety and security of user funds, as well as advanced features such as access to margin trading, which allows users to borrow funds to increase their trading positions. Trading occurs when customers post buy and sell orders in the order book of an exchange.

How crypto exchanges work:

  • Users can trade between various cryptocurrencies on crypto-to-crypto exchanges.
  • Exchanges that facilitate the trading of fiat currency for cryptocurrencies are known as “fiat-to-crypto exchanges.”
  • The order book is the part of the exchange where buyers and sellers submit their requests for trades. Fiat-to-crypto exchanges enable traders to purchase cryptocurrencies with traditional money, while crypto-to-crypto exchanges enable users to trade between different cryptocurrencies.
  • Security is a major concern in the world of cryptocurrency trading. Most exchanges store their users’ cryptocurrency holdings in secure offline storage, known as cold storage, to protect them from malicious attacks. This ensures that user funds are adequately protected and remain safe. Crypto exchanges also offer security features such as two-factor authentication and encrypted data transmission to help protect users’ accounts and funds.

The Order Book


You must submit a buy or sell order on an exchange if you want to acquire cryptocurrencies or liquidate your existing holdings. The order book is where the buy and sell orders are compiled and sorted by the exchange based on their respective prices. As orders are matched and completed, they are added to and removed from the list, which is updated in real-time.

Although there are many distinct order types, the most common ones are market orders and limit orders. Your money will be traded at the best market price in the order book when you make a market order. Limit orders tell the exchange that you want to buy or sell at a certain price (or better). If there isn’t a buyer or seller willing to take your limit order, it won’t be filled.

How does a stock exchange pair together buyer and seller requests?

For instance, some of the highest-ranked BTC sell orders advertise:

  • 0.10 BTC for 50,000 USD per BTC;
  • 0.30 BTC for 50,300 USD per BTC;
  • 0.20 BTC for 50,400 USD per BTC;

You can get 0.3 BTC for a total of $15,080 if you submit a buy market order before any other buyers do so. Your purchase will be filled at the best price available in the order book, which means you will receive 0.1 BTC for 5,000 USD and 0.2 BTC for 10,080 USD. Since you’d have to pay a little more – 15,090 USD, the exchange doesn’t fill your 0.3 BTC sell order.

If you wanted to acquire 0.20 BTC at a price of no more than US$50,000 per bitcoin, your order would be queued until more orders at that price appeared in the order book. Since the exchange can only complete half of your order at the moment, it’ll have to put the other half on hold for the time being.

Also, if you put in an order to buy 0.8 BTC at a maximum price of 50,400 USD per 1 BTC, more orders would need to be published in the order book before your complete transaction could be carried out. Although this example only includes three orders, typical stock exchanges offer many more trades.

Fiat-Crypto Exchange


In general, a cryptocurrency exchange will allow you to trade cryptocurrencies with other cryptocurrencies as well as fiat currency. Traditional monetary funds such as bank transfers, credit card payments, and other payment methods can be added to user accounts.

People who have yet to acquire any cryptocurrency can utilize this form of trade to purchase some from those who do. The process of exchanging cryptocurrencies for fiat currencies and vice-versa can be completed in a matter of minutes If an investor decides to sell their coins for fiat currency, the money can be withdrawn at any moment.

Crypto-Crypto Exchange

Traditional currencies and payment methods are not accepted on a crypto-to-crypto exchange. It’s a good fit for crypto holders who want to purchase a coin or token that can’t be bought on a regular crypto market.

Most crypto exchanges will require you to authenticate your account before you can begin using their service. To start trading, you usually need a valid photo ID and a document showing where you live.

There are many different types of crypto-to-crypto exchanges available today: some allow investors to purchase digital currencies using fiat currency while others offer trading options only available using cryptocurrencies such as Bitcoin or Ethereum; some platforms let users trade between different cryptocurrencies, while others restrict them only within certain regions or countries.

Crypto exchanges are a great way to acquire cryptocurrencies, but it’s important to note that trading is not free. Crypto exchanges require a fee for each transaction, which can add up over time. The fees associated with cryptocurrency exchanges vary depending on their size and type of platform.