What Is a Crypto Exchange? A Beginner's Guide

What Is a Crypto Exchange?

A crypto exchange is an online platform that lets you buy, sell and swap cryptoassets using pounds sterling, other fiat currencies, or other cryptoassets. It acts as a marketplace, bringing together people who want to buy a cryptoasset with people who want to sell it, and helping to set a price through supply and demand.

According to the Financial Conduct Authority (FCA), 8% of UK adults now own cryptoassets, and 26% of non-users said they would be more likely to invest if the market were regulated (FCA, February 2026). Crypto exchanges are the main entry point most people use to buy their first cryptoasset.

The word 'exchange' covers a range of platforms, from large international apps to smaller, specialist services, and they are not all built the same way. The next sections explain the main differences.

How Does a Crypto Exchange Work?

Most exchanges work by matching buy and sell orders in an order book, then settling the trade and updating each user's account balance. You place an order stating what you want to buy or sell and at what price, and the exchange's matching engine pairs it with a compatible order from another user.

Order matching and execution

A market order buys or sells immediately at the best available price. A limit order only executes once the market reaches the price you set. Once two orders are matched, the trade is executed and each account balance is updated to reflect the new holding.

Custody: who holds the crypto

On many exchanges, the platform holds your crypto security on your behalf in its own accounts, which is known as a custodial setup. This is convenient, since you do not need to manage your own private keys, but it means you are relying on the exchange to keep your assets secure and to remain solvent.

Centralised vs Decentralised Crypto Exchanges

The main difference between exchange types is who holds your crypto and how much identity verification is required. Centralised exchanges (CEX) are run by a company and typically hold your assets for you. Decentralised exchanges (DEX) run on blockchain-based smart contracts and let you trade directly from your own wallet, without handing over custody of your funds.

Centralised exchanges tend to be easier for beginners and offer features such as customer support and a wider range of order types. Decentralised exchanges give users more control over their own funds, but usually come with a steeper learning curve and can have lower liquidity for less popular tokens.

Crypto Exchange vs Crypto Wallet: What's the Difference?

A crypto exchange is a marketplace for trading cryptoassets. A crypto wallet is a tool for storing the private keys that give you control over your cryptoassets. You can hold crypto on an exchange, inside its own built-in wallet, or you can move it to a separate wallet that only you control.

The distinction matters because of the popular crypto saying, 'not your keys, not your coins'. If your crypto sits in an exchange's custodial wallet, the exchange technically controls the private keys, even though the balance shows in your account. If you move your crypto to a wallet where you hold the keys yourself, you take on full responsibility for keeping those keys safe, and losing them generally means losing access to the funds permanently.

Types of Crypto Exchanges

Crypto exchanges are generally grouped into a few broad categories, based on how they operate and how much control they give the user. If you are completely new to this, it can help to first read about what crypto investing involves and how you buy cryptocurrencies before comparing exchange types.

• Centralised order-book exchanges: run by a company, using an order book to match buyers and sellers, similar to a traditional stock exchange.
• Crypto brokers: simplified platforms where you buy and sell directly from the platform at a set price, rather than trading against other users.
• Decentralised exchanges (DEX): use smart contracts and automated market maker pools instead of a company-run order book, so trades settle directly from your own wallet.
• Peer-to-peer (P2P) marketplaces: connect individual buyers and sellers directly, often used for local currency payment methods.

Is a Crypto Exchange Regulated in the UK?

Cryptoasset exchange providers and custodian wallet providers carrying on business in the UK generally must register with the FCA under the Money Laundering Regulations 2017, a requirement that has applied since January 2020 (FCA, 2026). This registration is limited to anti-money laundering and counter-terrorism supervision, and it is not the same as full FCA authorisation of a financial services firm.

A broader regulatory regime is being introduced under the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026. The FCA's application window for firms seeking authorisation under this new regime is due to run from 30 September 2026 to 28 February 2027, with the full regime scheduled to take effect on 25 October 2027 (FCA, 2026). Rules and dates can change, so always check the current position at fca.org.uk before relying on them.

Risks to Understand Before Using a Crypto Exchange

Cryptoassets are highly volatile and largely unregulated in their own right, and using an exchange adds some further, specific risks worth understanding before you start.

• Volatility risk: cryptoasset prices can move sharply in either direction over short periods.
• Cyber and security risk: centralised exchanges have historically been targeted by hackers, and a successful attack can result in the loss of customer funds held on the platform.
• Counterparty and insolvency risk: if a centralised exchange becomes insolvent or mismanages client assets, you may not get back everything you deposited.
• No FSCS protection: cryptoasset holdings are not covered by the Financial Services Compensation Scheme, unlike money held in a UK bank account.
• Liquidity risk: it is not guaranteed that a cryptoasset can always be sold quickly at the price you want, particularly for less widely traded tokens.

Losses can exceed your initial deposit when trading with leverage. If a platform offers leveraged or margined crypto trading, treat this as a materially higher-risk activity than simply buying and holding cryptoassets on a spot basis.

How to Choose a Crypto Exchange: What to Check

There is no single exchange that suits everyone, and this guide does not recommend a specific provider. Instead, here is a neutral framework for what to check before you sign up to any exchange.

• FCA registration status: check whether the exchange appears on the FCA's register of cryptoasset businesses.
• Security practices: look for measures such as two-factor authentication, cold storage of the majority of client funds, and independent security audits.
• Fee transparency: check trading fees, deposit and withdrawal fees, and any spread built into the price, before you commit funds.
• Supported cryptoassets and payment methods: confirm the exchange supports the specific assets and GBP payment methods you plan to use.
• Customer support and track record: look for clear, accessible support channels and a track record of operating without major incidents.

In short:

• A crypto exchange lets you buy, sell and swap cryptoassets, and works by matching buyers and sellers.
• Centralised exchanges hold your crypto for you. Decentralised exchanges let you keep control of your own funds.
• An exchange is for trading; a wallet is for storing your keys. They are not the same thing.
• UK cryptoasset exchanges must register with the FCA under money laundering rules, with a broader regime being phased in from 2027.
• Understand the specific risks, including volatility, security, insolvency and the lack of FSCS protection, before using any exchange.

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