centralized exchange is an intermediary organization that facilitates crypto trading between buyers and sellers. They are a third-party entity that provides services and oversees operation activities to allow traders to buy, sell, or exchange crypto tokens.
Similar to a traditional securities exchange, CEX generate income by charging fees from users performing transactions through its platform. This is usually a percentage of the transaction. The platform controls the infrastructure, security, maintenance, and the entire system.
A CEX allows traders to buy or sell crypto using fiat currencies. Furthermore, a trader can also set multiple parameters like stop-loss for crypto trades. Alternatively, the ecosystem of CEX allows a trader to access advanced features like margin trading and lending within the crypto industry.
The control of the platform and of a client’s cryptocurrency funds remains in the hands of the exchange. Hence, if there is an attack, it can result in the loss of their client’s crypto funds. A number of attacks have been carried out on CEX crypto exchanges that have resulted in a loss of Bitcoins and other crypto tokens.
other CEXs not included in picture. There are quite a few more.
These are the key features of a centralized cryptocurrency exchange.
Functionality – A centralized cryptocurrency exchange offers user-friendly access for a beginner in the crypto industry. They enable users to buy or sell through fiat currency. Moreover, they also provide multiple additional services including storage, limits, and even leveraged trading in some cases.
Regulatory requirements – Centralized exchanges usually have an operating license depending on their country/ region. Therefore, they implement KYC and AML procedures in order to comply with legal laws and ensure the safety of customers.
Security – Some exchanges also store a user’s private keys to crypto assets on their platform. Since these firms are held on centralized networks, they are prone to hacks and attacks. But, anyways, they adopt advanced security protocols including 2FA and cold storage so as to provide maximum protection to their client’s crypto tokens.
Liquidity – Since CEX exchanges are considerably popular and have a wider audience, they provide higher liquidity to tokens. In a centralized exchange, it is relatively easy to find a buyer or seller for your crypto token and this further liquidates the market