A cryptocurrency exchange is an online platform that supports the exchange of various currencies for a cryptocurrency or digital asset.
Comparable to a generalized financial exchange, a crypto exchange’s core function is to permit and encourage the buying and selling of cryptos.
This is accomplished by producing a stable trading environment suitable for traders nested through different locations around the world.
Sometimes a crypto exchange may be referred to as a digital currency exchange (DCE) for short.
How Does Trading Take Place on a Crypto Exchange?
Cryptocurrency trading occurs over a centralized exchange, although these crypto exchanges should be used with caution given the implications that surround the custody of new assets.
Similar to the banking industry, when a crypto exchange holds cryptocurrencies of users they accrue interest and are no longer classified as client money.
These provide an accessible platform for not only companies, hedge funds, and retail traders for exchanging digital currencies.
Additionally, crypto exchanges serve a critical role in producing stability within the cryptocurrency sector given how the sourcing and pricing of these assets are innately volatile.
One could think of a crypto exchange as an intermediary who provides a service by connecting buyers and sellers from various markets under one roof.
In exchange for facilitating trades and for services rendered, a digital currency exchange generally collects a fee of an outgoing transaction that averages between 0.20% to 0.25% or will request a deposit fee that has been known to be as high as 11% for credit card deposits.
Crypto exchanges may also support the exchange of crypto tokens, such as the Binance Token, which is ranked as the 9th most valuable cryptocurrency in the world.