Centralized exchange (CEX is) — what traders need to know

Why do traders choose centralized platforms?

In the crypto industry, there are two main types of trading platforms: centralized and decentralized. What is a CEX — this is a question that every crypto newcomer asks themselves. Essentially, it is an online marketplace for trading cryptocurrencies managed by a single company or organization.

Cryptocurrency trading involves high risks — prices can jump sharply in either direction. That’s why traders prefer to use trusted platforms with reliable asset protection. Centralized exchanges have become the industry standard due to their convenience and functionality.

How is a centralized exchange structured internally?

CEX is a platform where buyers and sellers meet. When you register, you need to go through identity verification and make a deposit. Then, you can place orders.

The working mechanism is simple: your buy order goes into the order book of the platform. When a matching sell order appears, the system matches them, and the transaction is completed. The exchange charges a transaction fee — this is its main source of income.

Exchanges offer a wide range of tools: limit orders, stop-losses, margin trading, and leveraged trading. This allows even experienced traders to implement complex strategies.

Asset security on a centralized exchange

Most platforms store the majority of funds in cold wallets — completely offline, which protects against hacking. Hot wallets are used only to ensure liquidity and current operations.

CEX is not just a trading platform, but also a custodial service. The exchange holds your coins in its own wallets, investing in multi-layered security protocols. If the platform is hacked, the company usually compensates users’ losses.

However, there is a nuance: while your assets are on the exchange, you do not own the private keys. In the crypto community, they say — “not your keys, not your coins.” The exchange can technically freeze or confiscate your funds, although reputable platforms do not do this.

Services provided by centralized platforms

Besides trading, CEX is a comprehensive service. Platforms perform several functions simultaneously:

1. Order matching — connecting buyers and sellers through the order book
2. Asset storage — both fiat money and cryptocurrencies
3. Clearinghouse function — the exchange acts as an intermediary between traders, protecting their anonymity

Thanks to the third function, you see a deal with the exchange, not with another trader. This ensures confidentiality and simplifies the process.

Many platforms have expanded their services: they offer staking, NFT trading, launchpads for new projects, P2P exchanges, and other products all in one place.

Main advantages of centralized exchanges

Ease of use — this is the main reason for their popularity. Modern platform interfaces are intuitive even for beginners. You do not work directly with smart contracts and the blockchain — everything is automated.

Support and security — large exchanges have support services that help with issues. Insurance against hacks provides confidence for less experienced traders.

Wide selection of assets — platforms support cryptocurrencies from different blockchains in one place.

High liquidity — on large CEX you can easily buy or sell the required amount of cryptocurrency without slippage.

Fiat deposit options — you can buy crypto with dollars, euros, or rubles, which simplifies entry for newcomers.

Disadvantages of centralized platforms

Fees are not a thing of the past. Every purchase, every sale — incurs a fee. Over the long term, these costs accumulate.

The risk of hacking remains real. Despite investments in security, hackers sometimes find vulnerabilities, often through human errors. The best protection is to withdraw funds from the exchange after trading.

Custodial storage means losing control. Private keys remain with the exchange, and you are fully dependent on its integrity.

Contradiction to crypto philosophy — centralization contradicts the decentralized nature of blockchain. Due to regulatory requirements, many platforms introduced mandatory verification and could freeze accounts if necessary.

Decentralized exchanges as an alternative

Frustration with centralization led to the emergence of decentralized exchanges (DEX). DEXs are platforms built on smart contracts, where there is no single governing body.

Initially, they were unsuccessful due to a lack of liquidity. Then, the automated market maker technology (AMM) appeared. Users can contribute their tokens to liquidity pools and receive rewards, while the platform uses these pools to execute trades.

How do decentralized exchanges work?

DEXs are entirely different mechanisms. No registration, verification, or deposits are required. You simply connect your personal wallet to the platform and start trading.

Instead of an order book, a market maker — an automatic mechanism calculating prices based on the ratio of assets in the pool — is used. Tokens go directly into your wallet, without intermediaries.

The advantages are obvious: true decentralization, private key retention, no verification. But there are downsides: sometimes liquidity shortages, complexity in use, and the lack of a simple way to buy crypto with fiat.

CEX or DEX — which to choose?

Centralized exchange is better for beginners and active traders seeking convenience and a variety of tools. DEX appeals to those who value privacy and full control over their assets.

Over time, both models are evolving. DEXs are becoming more user-friendly, CEXs are adapting to regulatory requirements. Currently, centralized platforms remain the dominant model in the industry.

The ideal approach is to use both: CEX for long-term storage and leveraged trading, DEX for private exchanges.