Why can't traders do without centralized exchanges? A deep dive into the operational logic of CEXs

In recent years, cryptocurrency trading volume has surged dramatically, but market risks have also increased—price volatility is intense, and risk management has become an essential skill for traders. To enter this field, you need a trading account, and there are two main options in the market: Centralized Exchanges (CEX) and Decentralized Exchanges (DEX). This article will analyze in detail why Centralized Exchanges still dominate the market.

Core Definition of Centralized Exchanges

Centralized Exchanges (CEX) are online trading platforms controlled and managed by specific companies or organizations. As pioneers in cryptocurrency trading, CEXs used to operate completely anonymously, but with regulatory intervention, now all users are required to complete identity verification (KYC) before trading.

This shift, while increasing compliance costs, also provides more security for users. Centralized Exchanges reduce market risk through regulated operations, which is a key reason for their high popularity.

Why Traders Choose CEX: Four Core Features

1. Flexible Order Types and Trading Tools

Centralized Exchanges offer professional-grade trading tools, including limit orders, stop-loss orders, take-profit and stop-loss orders, margin trading, and leverage trading. These features allow traders to precisely control entry and exit points rather than passively accepting market prices. This is a primary reason why professional traders and institutions prefer CEXs.

2. Order Matching and Liquidity Assurance

On a CEX, your buy orders enter the order book, and the system automatically matches them with corresponding sell orders. This process is executed by the exchange as an intermediary, ensuring each trade has a counterparty. The trading fees collected by the platform are the cost of this service—covering fees for both makers (order creators) and takers (order fillers).

In contrast, DEXs often face liquidity shortages, which is their biggest disadvantage.

3. Asset Custody and Secure Storage

Centralized Exchanges store users’ fiat and crypto assets separately in cold wallets (offline) and hot wallets (online liquidity). Most funds are stored in cold wallets, theoretically immune to hacking. Only the funds used to maintain trading liquidity and user withdrawals are kept in hot wallets, which is the only avenue for theft.

Therefore, immediately withdrawing funds to a personal wallet after trading is the best practice to reduce risk.

4. Privacy Protection and Counterparty Risk Transfer

Centralized Exchanges act as “clearing counterparties,” meaning technically you are trading with other users, but the transactions are conducted in the name of the exchange. This design protects user identity information and reduces counterparty default risk.

Security of CEX: Balancing Investment and Risk

Centralized Exchanges invest heavily in security measures—multi-layer authentication, real-time monitoring, offline cold storage, etc., which have become industry standards. Most platforms also offer trading insurance; if hacked and funds are lost, users are compensated.

However, risks still exist. Major hacking incidents in the past often stemmed from human error rather than technical vulnerabilities. The best defenses are:

• Immediately withdraw funds to personal wallets after trading
• Use hardware wallets (cold storage) for long-term asset holding
• Diversify assets instead of putting all eggs in one basket

Convenience of Centralized Exchanges vs. Freedom of Decentralized Exchanges

Centralized Exchanges have obvious advantages: user-friendly interfaces, easy for beginners, 24/7 customer support, comprehensive product lines (spot trading, leverage, staking, NFT marketplaces, etc.). Managing multiple assets and trading types on the same platform is highly efficient.

While DEXs operate entirely via smart contracts without requiring account registration, embodying the “uncensorable” spirit of blockchain, they still have shortcomings in usability, liquidity, and fiat support.

Trading Fees: Hidden Costs Not to Be Overlooked

Centralized Exchanges primarily earn revenue from trading fees. Although individual fees may seem negligible, over long-term trading, accumulated costs can significantly erode profits. This is why choosing a platform with reasonable fee structures is important for long-term traders.

CEX vs DEX: How to Choose?

There is no absolute “better,” only “more suitable”:

• Choose CEX if you: are a beginner, need fiat on/off ramps, trade frequently, prioritize user experience, and want insurance protection.
• Choose DEX if you: seek full autonomy, distrust third parties, only trade coin-to-coin, and are willing to learn smart contract interactions.

Centralized Exchanges still dominate the market because of their comprehensive advantages in convenience, security, and trading tools. But this does not mean CEXs are perfect—“Not your keys, not your coins” still warns all users that long-term assets should be self-custodied.

Quick Q&A

Q: What does CEX stand for?
A: CEX = Centralized Exchange, operated and managed by a single organization, a centralized exchange.

Q: What is the fundamental difference between centralized and decentralized exchanges?
A: Centralized exchanges are managed by companies, DEXs are managed by smart contracts and community. The former is more convenient, the latter more自由.

Q: Why is the phrase “Not your keys, not your coins” important?
A: Because centralized exchanges hold your wallet’s private keys, and in theory, can freeze or seize your assets at any time. This is why long-term holdings should be stored in self-custody wallets.

Q: Can centralized exchanges be hacked?
A: Although they have strong technical defenses, human vulnerabilities can still be exploited. Using cold wallets and regular withdrawals are the most effective protective measures.