What is a centralised crypto exchange, and what are you trusting when you use one?

What a centralised exchange is

The Bank for International Settlements (BIS) defines a centralised exchange (CEX) as a platform for buying and selling crypto, either for ordinary money or for other crypto. It acts as a middleman, and sometimes holds customers' assets too.¹ ethereum.org describes exchanges simply: businesses that let you buy crypto using traditional currencies.²

In July 2023, the BIS said CEXs attracted more trading than decentralised exchanges, because they cost less to trade on.¹ It added that CEXs copy some jobs of traditional exchanges but are not under the same regulation and supervision.¹

Your coins, the exchange's records

To trade on a CEX, you first deposit your assets with it.³ ethereum.org says exchanges have custody of any ETH you buy until you send it to a wallet you control.² Custody means holding the private keys that control the coins. Module 8 explains it.⁴

US Securities and Exchange Commission (SEC) staff list crypto exchanges among third-party custodians, which control access to your private keys.⁴ If such a custodian is hacked, shuts down or goes bankrupt, they warn, you may lose access to your crypto.⁴

Trades inside a CEX happen in its own records. The BIS says CEXs keep "off-chain" records of the orders traders post, meaning records kept outside the blockchain.¹ Your coins come back under your control only when you withdraw them to a wallet you control.²

The order book

Most markets that the public can use run a central limit order book: buyers and sellers post orders at the prices they want, and those orders are filled as demand shifts.⁵ The BIS says CEXs work this way, as in traditional finance.¹

Coinbase's documentation, for example, says its exchange runs a "first-come, first-serve" order book. Orders are filled in "price-time priority": a better price goes first, then the order that arrived earlier.⁶ A trade happens at the price of the order already waiting on the book.⁶

There are two main kinds of order.⁷

• Limit order. You set the price and the size. It fills at your price or better, or it waits.⁷
• Market order. It fills straight away against orders already on the book, at whatever prices are there.⁷

A big market order can eat through several price levels on the way, so its average price gets worse.⁷ Module 18 covers order-book depth and slippage in detail.

Maker and taker fees

Many exchanges charge two different fees.^8,7 An order that waits on the book adds to it, so it is a maker order. An order that fills at once uses up orders already there, so it is a taker order. Coinbase's documentation says market orders are always takers and pay taker fees.⁷

As one example, Kraken's fee schedule, read on 22 October 2026, used a maker-taker system with lower fees for traders with more volume.⁸ Its lowest Kraken Pro tier for spot trading charged 0.40% for maker orders and 0.80% for taker orders.⁸ It also said deposit and withdrawal fees depend on the method and the currency.⁸ Fees change, and naming an exchange here is not a recommendation.

Checks on who you are

In the US, the Financial Crimes Enforcement Network (FinCEN) says businesses that exchange virtual currency for real money or for other virtual currency generally count as money transmitters.⁹ They must run anti-money-laundering programmes that include verifying who their customers are.⁹ That is why an exchange asks who you are when you open an account. Module 23 explains these checks.

What you are trusting

Regulators' staff and ethereum.org point to several things you rely on when your coins sit on a CEX.^3,4,10

• Safekeeping. ethereum.org warns that deposited assets are at risk, because CEXs are attractive targets for hackers.³
• How your coins are used. SEC staff say some custodians lend out deposited crypto, or pool it instead of holding it for each customer. They suggest asking whether yours does, and whether it needs your consent.⁴
• Fair dealing. The Commodity Futures Trading Commission (CFTC) warns that some platforms sell from their own accounts, putting customers at an unfair disadvantage.¹⁰
• Conflicts. In March 2023, SEC staff warned that crypto platforms may combine jobs that regulated markets split between separate firms, such as running the exchange, acting as broker and holding assets. That mix creates conflicts of interest.¹¹
• Staying in business. If the exchange fails, you may lose access to your coins.⁴ The CFTC adds that there is no assurance of getting stolen crypto back.¹⁰