What is a crypto exchange?
Where most people buy their first crypto, and the risks of leaving it there.
A crypto exchange is a platform where you buy, sell and swap cryptocurrency. Centralized exchanges are companies that hold your money and crypto for you; decentralized exchanges (DEXs) are smart contracts you trade with directly from your own wallet.
Centralized vs. decentralized
| Compare | Centralized exchange (CEX) | Decentralized exchange (DEX) |
|---|---|---|
| How it works | A company matches buyers and sellers and holds funds | Smart contracts trade tokens from your wallet |
| Account | Sign-up with ID checks | No account; connect a wallet |
| Pay with dollars? | Yes: bank transfer or card | Usually no; you swap crypto for crypto |
| Who holds your funds | The exchange | You do |
| Main risk | The company fails, freezes withdrawals or is hacked | Smart contract bugs, fake tokens, bad approvals |
Why leaving coins on an exchange is a risk
When FTX collapsed in November 2022, customers lost access to their funds overnight. Crypto held on an exchange isn't a bank deposit and isn't protected by FDIC insurance. Many people buy on an exchange, then move larger long-term holdings to a wallet they control.
How to check an exchange is legitimate
- In the US, check that it's registered with FinCEN as a money services business and licensed in your state (your state's financial regulator lists licensees).
- Type the address yourself. Fake exchange websites and apps are a major scam; many "investment platforms" recommended by online friends are fake.
- Be suspicious of any platform that promises guaranteed returns, shows huge "profits" but charges fees or "taxes" before you can withdraw.
- Turn on app-based two-factor authentication (not SMS) and a withdrawal address allow-list if offered.
Fees
Expect a trading fee, a spread built into the price, and a fee to withdraw. The instant-buy button is usually the most expensive way to buy. See fees explained or calculate it with the true cost calculator.
Frequently asked questions
Is my money insured on a crypto exchange?
Cash held at some US exchanges may be held at FDIC-insured banks, but the crypto itself isn't FDIC insured. Check the exchange's terms.
What is a DEX?
A decentralized exchange: a set of smart contracts that swap tokens directly from your wallet, with no company holding your funds.
Why did the exchange ask for my ID?
Regulated exchanges must verify customers' identity under anti-money-laundering rules. Be wary of 'exchanges' that never ask.
Where to next
Sources
Written for beginners and checked against the sources listed. Last reviewed October 26, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.