A cryptocurrency exchange is simply where buyers and sellers can trade crypto. If you want to trade crypto, you need to do it via a crypto exchange because, at least for now, very few traditional investment firms offer crypto.

Generally speaking there are three main types of crypto exchanges — centralized, decentralized, and hybrid. But there are other ways to buy and sell crypto, including investing apps and P2P or peer-to-peer platforms where you can buy and sell crypto 1:1.

Learn more about the different types of exchanges, how a crypto exchange works with your crypto wallet, and how to decide which type of exchange is best for you.

How a Crypto Exchange Works

When you set up an account with a crypto exchange, it enables you to buy and sell cryptocurrencies like BTC, ether (ETH), litecoin (LTC), polkadot (DOT), dogecoin (DOGE), and so on. Depending on the exchange, you can purchase crypto using a fiat currency like the U.S. dollar, or trade one form of crypto for another.

The bigger and more established a service is, the more likely it is to offer a range of cryptocurrencies. Still, you may want to check that your desired crypto is available before setting up an account.

On a crypto exchange, you can use ordinary fiat currency to buy crypto, or you may be able to trade one crypto for another. You may be able to convert your crypto back into regular currency, leave it in your account for future trades, or withdraw it as cash. Available services can vary, depending on the exchange or app you use. For example, some services don't allow you to move your crypto off platform to your own crypto wallet.

How to trade on a crypto exchange

To begin trading, you need to fund your exchange account — sometimes called a wallet. Note that a wallet provided by a platform or app is typically held on that platform. It's generally recommended that you also set up your own crypto wallet for greater security (more on crypto wallets below).

You can then view the trading prices of different crypto. Note that the exchange doesn't set the prices; they're determined by the market, and most exchanges reflect up-to-the-minute pricing, although there can be slight differences among exchanges owing to the fact that cryptocurrencies are decentralized.

You can then place a buy order to purchase Cryptocurrency, ether, etc., and your order is added to the order book along with other buy and sell orders. Depending on which type of platform you are on (an exchange, investing app, or cash app), the view of Exchanges and online brokers generally charge fees for their services. Unlike traditional markets, where many fees have declined in recent years, crypto trading typically costs more. It is not uncommon to see fees as high as 5% per trade or more, for example, although many can be much lower: 0.5% or less per trade.