Crypto exchanges explained: fees, safety and what to check
A crypto exchange is where most people first buy a coin. It looks like a simple app, but a lot happens behind the screen. Here's how it works, what it costs, and what to check first.
What a crypto exchange does
A crypto exchange is a company that matches buyers and sellers of coins. It's often called a centralized exchange, or CEX, because one company runs it.
When you sign up, you usually:
- Prove who you are (this is called KYC, "know your customer").
- Add money from your bank or card.
- Buy and sell coins on the platform.
- Leave the coins there, or send them to your own wallet.
The big thing to understand: custody
When your coins sit on an exchange, the exchange holds the keys, not you. Your screen shows a balance. That balance is a promise from the company.
Usually that works fine. But when exchanges fail, customers can wait years to be repaid, and may not get back what their coins were worth. Two famous examples:
- Mt. Gox stopped withdrawals and went bankrupt in 2014 after losing a huge amount of bitcoin.
- FTX collapsed in November 2022. Customer funds had been misused.
Hacks happen too. In February 2025, the Bybit exchange lost about $1.5 billion in ether in a theft the FBI tied to North Korean hackers.
Crypto held on a platform generally isn't covered by SIPC or FDIC. That's why our self-custody vs exchange guide is worth a read.
How the trading screen works
Most exchanges show two ways to buy.
The "simple buy" button
Quick and easy. You type a dollar amount and tap buy. The catch: the price often includes a markup or a higher fee. Always check the total before you confirm.
The trading screen (order book)
This shows a live Order book: a list of buy offers below the price and sell offers above it.
- The highest buy offer is the bid. The lowest sell offer is the ask. See Bid and ask.
- The gap between them is the Spread.
- You can place a Market order (fill now, at whatever's available) or a Limit order (fill only at your price or better).
Our market vs limit order guide explains when each makes sense.
The fees, one by one
| Fee | What it is | Tip |
|---|---|---|
| Maker fee | Charged when your limit order waits in the book and adds to it | Usually the cheapest way to trade |
| Taker fee | Charged when your order fills right away against the book | Market orders are usually takers |
| Spread | The gap between buy and sell price | Wider on small coins and quiet hours |
| Simple-buy markup | Extra cost built into the easy buy button | Compare against the trading screen |
| Deposit / card fee | For adding money, often higher on cards | Bank transfers are often cheaper |
| Withdrawal fee | For sending coins out | Check it before you move coins |
| Funding fee | On perpetual contracts, paid regularly while you hold | See Funding rate |
Fees look small, but they add up fast if you trade often.
A math example (not a promise): if each trade costs 0.5% in total fees and spread, 20 round trips in a month costs about 20% of the money you trade with, before any wins or losses. Fewer, planned trades keep this small.
Spot vs derivatives
Many exchanges offer two kinds of trading:
- Spot: you buy the actual coin. If price drops, you still own the coin.
- Derivatives, like Perpetual futures: contracts on the price, often with Leverage. A move against you can trigger liquidation, a forced close that takes your margin.
Most regulated US platforms limit leverage for retail customers. Offshore platforms that offer high leverage often don't serve US customers at all. Read our spot vs futures comparison and run the numbers in the crypto liquidation calculator before going near it.
A checklist for any exchange
Before you deposit a dollar, check:
- Can it legally serve you? Look for the states it operates in and its licenses.
- Who's behind it? A named company, a real address, a history you can look up.
- How does it hold coins? Clear words on custody and separating customer assets.
- Proof of reserves? Some publish one. It's helpful, but it's not the same as a full audit.
- Security tools? App-based two-factor, withdrawal allow-lists, login alerts.
- Full fee list? Trading, spread, deposits, withdrawals, all in one place.
- Can you withdraw easily? Test with a small amount first.
- Real support? And remember: real support never asks for your password or recovery words.
Centralized vs decentralized exchanges
There's another kind of exchange with no company in the middle, called a decentralized exchange (DEX). You trade straight from your own wallet.
| Centralized (CEX) | Decentralized (DEX) | |
|---|---|---|
| Who holds coins | The exchange | You, in your wallet |
| Sign-up | Account and ID check | Connect a wallet |
| Buy with dollars | Usually yes | Usually no, crypto only |
| Main risk | Company failure or hack | Your own mistakes, scam tokens, buggy contracts |
| Help if things go wrong | A support team | Usually none |
Our guide on what a DEX is goes deeper.
Using an exchange like a trader
The tools differ, but the habits don't:
- Read the chart first. Our guide to reading crypto charts covers it.
- Set a stop for every trade, placed where your idea is clearly wrong.
- Size from the stop with the position size calculator.
- Keep only what you're actively trading on the exchange.
Try it today: open the fee page of any exchange you're curious about. Write down its maker fee, taker fee and the withdrawal fee for bitcoin. Then look at the order book and note the spread. You now know what one trade really costs.
Questions
How do crypto exchanges work?
They match buyers and sellers through an order book and hold customers' coins and cash. You deposit money, place orders, and can withdraw coins to your own wallet.
Are crypto exchanges safe?
Some are much safer than others, but all carry risk. Exchanges have failed and been hacked, and crypto on a platform generally isn't SIPC or FDIC protected. Check the platform and keep only what you need there.
What is the difference between maker and taker fees?
A maker adds an order to the book that waits to be filled, usually a limit order. A taker fills against an existing order right away, usually a market order. Maker fees are typically lower.
Why is the price different on different exchanges?
Each exchange has its own buyers and sellers, so prices can differ slightly. Traders who buy on one and sell on another usually keep the gap small for big coins.
Do I have to verify my identity on a crypto exchange?
Regulated US exchanges require it. They must check who their customers are under anti-money-laundering rules.
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