Jasmine Birtles
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What is a Cryptocurrency Exchange and How Do Investors Use It?
Ruby Layram
12th Mar 2025
A cryptocurrency exchange is the name given to a platform through which investors can buy and sell cryptocurrencies. However, despite its common place in the crypto world, many investors aren’t entirely clear about what a crypto exchange is and what they can be used for.
In this guide, we’ll break down what a crypto exchange is, how it works, and how investors use it to navigate the ever-evolving world of digital assets.
Also read: How to get started in crypto (a complete guide!)
What is a Crypto Exchange?
A cryptocurrency exchange is an online platform that allows users to buy, sell, and trade digital currencies.
These exchanges facilitate transactions by matching buyers with sellers, setting market prices based on supply and demand.
Most crypto exchanges also provide wallets where users can store their assets. Some even offer advanced trading features like margin trading, staking, and futures contracts.
Cryptocurrency exchanges provide access to the crypto market, allowing you to buy assets that are available.
Cryptocurrency Exchange vs Broker
A common question among new investors is: what’s the difference between a cryptocurrency exchange and a broker?
While both enable crypto trading, they operate differently.
Cryptocurrency exchanges: Act as marketplaces where users trade cryptocurrencies directly with each other. Prices fluctuate based on market demand, and users place their own buy or sell orders.
Crypto brokers: Act as intermediaries that route trades to cryptocurrency exchanges rather than executing them internally. Brokers provide a simplified trading experience, often offering set prices for convenience. However, they do not always disclose which exchanges they use to process trades. In many cases, these exchanges are based internationally, often in regions with different regulatory standards. This means that brokers may have exposure to exchanges that are not regulated under local laws.
If you like having full control over your trades, an exchange is the way to go. But if you prefer convenience and don’t mind the lack of transparency in trade execution, a broker might be a better fit. Brokers generally charge higher fees for their service.
How Does a Cryptocurrency Exchange Work?
Crypto exchanges work by connecting buyers and sellers in a digital marketplace. Here’s a simplified breakdown of the process:
- Sign up: Users create an account and complete identity verification (known as KYC) if required.
- Deposit funds: You can fund your account with fiat currency (like USD, GBP, or EUR) or transfer existing crypto from another wallet.
- Place orders: Users can place buy or sell orders based on their trading strategy.
- Order matching: The exchange matches buy and sell orders and executes trades.
- Withdraw funds – Investors can withdraw their crypto to an external wallet or convert it into fiat currency.
Exchanges make money through trading fees, spreads, and additional services like staking or lending.
Different Types of Crypto Exchange
Not all crypto exchanges operate the same way. There are two main types: centralised and decentralised exchanges.
Centralised exchanges
A centralised exchange (often abbreviated as ‘CEX’) is managed by a company that acts as an intermediary in crypto transactions.
These platforms provide high liquidity, fast transaction speeds, and user-friendly interfaces. A popular example is CoinJar.
Pros:
- High trading volume and liquidity, which usually mean lower fees
- User-friendly interface
Cons:
- Your crypto is held on the exchange. So, be sure that they offer good security.
- If an exchange goes bust, you become an unsecured creditor
- Slower to list new tokens than Decentralised Exchanges
Decentralised exchanges
A decentralised exchange (or ‘DEX’) operates without a central authority. Instead, it uses blockchain technology and smart contracts to facilitate peer-to-peer trading. Examples include Uniswap, SushiSwap, and PancakeSwap.
Pros:
- No need for identity verification
- Greater privacy and security
- Users maintain full control of their funds except when providing liquidity or while the trade is in progress
- Fast to list new tokens (usually as soon as liquidity is provided by a 3rd party)
Cons:
- Lower liquidity compared to CEXs
- Complex interface for beginners
- No customer support
- Your trades are vulnerable to sandwich attacks, which might mean higher fees
How Do Investors Use a Cryptocurrency Exchange?
Cryptocurrency exchanges can be used by investors for a variety of reasons such as:
- Buying and selling crypto: Investors purchase digital assets based on market trends and sell if prices rise.
- Trading: Advanced users engage in day trading, futures trading, or arbitrage strategies.
- Staking and yield farming: Some exchanges offer staking programs, allowing investors to earn passive rewards for holding certain cryptocurrencies.
- Portfolio diversification: Investors use exchanges to gain exposure to different cryptocurrencies and spread their investment across different coins.
How to Pick a Good Crypto Exchange
Choosing the right crypto exchange can make or break your investment experience.
We recently published a breakdown of our 5 top FCA-registered exchanges. However, if you feel like doing your own research, here are some things to consider:
Platform reputation and user reviews
One key metric to consider (that is often overlooked) is whether the exchange has a reputation for being safe, reliable and efficient. The best way to gauge this is to read through user reviews on platforms such as Trustpilot.
Look for the longest running exchanges with local support teams who have been around since at least 2013 – so they have been through many bull and bear markets and haven’t yet been hacked.
I also recommend researching whether the exchange has a history of successful hacking attempts. Platforms with the least number of successful attempts are typically considered to be the most robust (however, this isn’t always straightforward!)
Look at licensing and regulation
Ensure the exchange is legally compliant in your region. It’s important to note here that crypto exchanges are not regulated in the same way that stock exchanges are. In fact, the regulatory landscape of cryptocurrency is currently up for debate and is expected to change significantly over the next few years.
Therefore, it’s important to stay up-to-date with the latest best practices and keep an eye on exchanges that come under regulatory scrutiny.
Check fees, minimum deposits, and withdrawal limits
If you’re not careful, trading fees can quickly add up and eat into your returns.
Different exchanges charge different fees. When you’re doing your research, compare transaction fees, withdrawal fees, and trading fees before signing up.
Where possible, try to pick an exchange that offers a transparent (and low) fee structure – this will make it easier to calculate the cost of buying crypto.
Look for good customer support
A responsive customer service team is crucial, especially for beginners. Look for exchanges with live chat, email, and phone support options. One of the best ways to find information about customer service options is by reading through user reviews.
Look at crypto selection
Not all exchanges offer the same range of cryptocurrencies. Make sure the platform supports the assets you want to trade.
If you’re a beginner, you could consider exchanges that support major coins such as Bitcoin, Ethereum, Solana and XRP.
However, more experienced investors might want to find platforms that support smaller coins to take advantage of the volatility that these projects often come with.
Look for educational resources, research tools, and expert insight
Some exchanges provide in-depth research, market analysis, and learning resources to help users make informed decisions.
Which Crypto Exchange is the Best for Beginners?
If you’re new to crypto, you should look for an exchange that offers a user-friendly interface, robust security and low fees.
Our top option for beginners is CoinJar which allows you to invest from as little as £10, and has received over 1000 5-star Trustpilot reviews.
Final Thoughts
Cryptocurrency exchanges are essential for anyone looking to buy, sell, or trade digital assets. Whether you choose a centralised or decentralised exchange, the key is to find one that aligns with your needs.
Do your research, compare features, and always prioritise security when selecting a platform.
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
| Standard Risk Statement |
| The above article is not to be read as investment, legal or tax advice and it takes no account of particular personal or market circumstances; all readers should seek independent investment advice before investing in cryptocurrencies. The article is provided for general information and educational purposes only, no responsibility or liability is accepted for any errors of fact or omission expressed therein. Past performance is not a reliable indicator of future results. |
| UK residents are required (in accordance with local legislation) to complete an appropriateness assessment to show they understand the risks associated with what crypto/investment they are about to buy and enabling CoinJar to categorize them as an investor. New customers are also required under local regulations to wait 24-hours as a “cooling off” period (from account creation), before their account is active (i.e. to deposit, trade, withdraw etc.). |
| Cryptocurrency is currently not regulated in the UK. It’s vital to understand that once your money is in the crypto ecosystem, there are no rules to protect it, unlike with regular investments. You should not expect to be protected if something goes wrong. So, if you make any crypto-related investments, you’re unlikely to have recourse to the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS) if something goes wrong. |
| Remember: |
| Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you should not expect to be protected if something goes wrong. Take 2 minutes to learn more: www.coinjar.com/uk/risk-summary. |
| If you use a credit card to buy cryptocurrency, you would be putting borrowed money at a risk of loss. We recommend you obtain financial advice before making a decision to use your credit card to purchase cryptoassets or to invest in cryptoassets. |
| Note the standard risk warning from the CoinJar website. |
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