Top Crypto Exchanges? Read This First

The two kinds of exchange

A centralised exchange (CEX) is a company that runs a trading platform: it opens accounts, holds customer funds, matches orders and processes deposits and withdrawals. A decentralised exchange (DEX) is software running on a blockchain that lets people swap tokens directly from their own wallets, without an account or a company holding their funds. Most people start on a centralised exchange, so that is the focus of this guide. Our guide to crypto for beginners covers wallets and blockchains.

Opening an account

Regulated exchanges must verify customers' identity before allowing deposits or withdrawals, a process known as know-your-customer (KYC), and monitor transactions for money laundering. This is a legal requirement in most major markets. An exchange that lets anyone trade large amounts without any checks is usually operating outside the rules, which also means customers have little protection if something goes wrong.

The order book and matching engine

At the heart of an exchange is the order book, a live list of buy and sell orders at different prices, and a matching engine that pairs them. When you place a market order to buy, the engine fills it against the cheapest waiting sell orders; when you place a limit order, it waits in the book until someone trades against it. Our guide to market vs limit orders explains the differences.

Most crypto is quoted against a stablecoin such as USDT, so a BTC/USDT pair shows how many USDT one bitcoin costs. Exchanges often pay professional market makers to keep buy and sell orders in the book, which narrows the spread for everyone else.

Who holds your coins

When you buy bitcoin on a centralised exchange, the trade usually happens only in the exchange's internal records. No blockchain transaction takes place until you withdraw. The exchange keeps customers' coins in pooled wallets:

• Hot wallets are connected to the internet to process withdrawals quickly, and are the usual target of hacks.
• Cold wallets are kept offline and hold the bulk of funds.

This means your exchange balance is a claim on the exchange. If the exchange is hacked, mismanages funds or goes bankrupt, your coins may be frozen or lost. That is the central difference between holding crypto on an exchange and holding it in a wallet you control.

How exchanges make money

• Trading fees: usually a percentage of each trade, lower for maker orders that add liquidity than for taker orders that remove it.
• Spreads on simple buy buttons: "instant buy" features often include a markup not shown as a fee.
• Withdrawal fees: charged when you move coins or money out.
• Derivatives: fees and funding on futures and leveraged products.

Our trading fees guide shows how to add these up, and the crypto profit calculator shows their effect on a trade.

Deposits and withdrawals

Crypto deposits arrive through the blockchain and are credited after a number of network confirmations. Withdrawals are sent from the exchange's hot wallet to the address you give, on the network you choose. Choosing the wrong network, for example sending USDT on Tron to an address that only supports Ethereum, can lose the funds permanently. Money deposits and withdrawals go through banks or card networks and follow their timing.

Futures and leverage

Many exchanges also offer perpetual futures, contracts that track a coin's price without an expiry date. They use leverage and a periodic funding rate paid between long and short traders to keep the contract close to the spot price. If losses reduce a position's margin too far, the exchange closes it automatically, which is called liquidation. Leverage limits on crypto for retail clients are strict in the UK and EU for this reason; see the margin calculator.

Proof of reserves

After the collapse of FTX in November 2022, many exchanges began publishing proof-of-reserves reports showing the coins they hold, often with a Merkle-tree tool that lets customers confirm their balance is included. These reports are useful but limited: they show assets at a point in time, and unless they also cover liabilities and are checked by an independent auditor, they cannot prove an exchange is solvent.

When exchanges fail

History shows the risks are real. Mt. Gox, once the largest bitcoin exchange, collapsed in 2014 after losing hundreds of thousands of bitcoin. FTX failed in 2022 after customer funds were used for other purposes. Hacks of hot wallets have hit many other exchanges. Customers in these cases waited years for partial repayment, if they got anything back.

Decentralised exchanges

A DEX lets you trade directly from your own wallet. Many use automated market makers: pools of two tokens supplied by users, where prices adjust automatically as people trade. You keep control of your coins, but take on other risks: bugs in smart contracts, slippage in small pools, fake tokens with copied names and phishing sites that imitate real DEX interfaces.

Checking an exchange before you use it

1. Confirm it is registered or licensed where you live, using the regulator's own website. See how to choose a broker or exchange.
2. Read how customer assets are held and whether they are segregated.
3. Look for independently verified proof of reserves that includes liabilities.
4. Make a small withdrawal early to confirm it works.
5. Turn on two-factor authentication and a withdrawal address allowlist if offered.
6. Keep only what you need for trading on the exchange.

Comparing top crypto exchanges

Lists of the top 10 crypto exchanges usually rank by trading volume, which says little about safety. Some of the largest exchanges by volume have collapsed. When comparing any exchange, look at where it is licensed, whether proof of reserves covers liabilities, how withdrawals performed in past market stress, and what fees you will actually pay.