Centralized exchange (CEX) — a key platform in the crypto market

In the last decade, the cryptocurrency market has been rapidly developing, attracting millions of traders worldwide. However, price volatility and high risks require participants to have a deep understanding of trading tools. One of the most important tools remains the centralized exchange, or CEX — a platform that allows easy trading of crypto assets. But what exactly is behind this term, and how do you choose the right option for your needs?

How a CEX Works and Why It Matters

A centralized exchange is an online platform for trading cryptocurrencies managed by a single organization. At first glance, this structure may seem contradictory to the philosophy of decentralization that underpins blockchain. However, it was the centralized exchange that first emerged and remains the most common way to access the crypto market.

Initially, CEXs existed as anonymous platforms where traders could trade without revealing their identities. But as the market grew and regulatory attention increased, the situation changed dramatically. Today, all major platforms require identity verification (Know Your Customer, KYC) — a mandatory condition for trading and withdrawing funds.

How a Centralized Exchange Operates

When you log into a CEX, you go through a standard registration process similar to opening an account at a traditional bank. First, you create an account, then verify your identity by uploading documents, and only after that can you deposit funds and start trading.

The core of any exchange is the order book, where all buy and sell orders are accumulated. When you place a market order to buy cryptocurrency, the system automatically matches it with a suitable sell order from another trader. When two orders meet, a transaction occurs. Thus, you buy crypto not directly from the exchange but from another user, with the platform acting as an intermediary.

For each transaction, the exchange charges a fee — this is its main source of revenue. There are two types of fees: maker fee (for those adding liquidity via limit orders) and taker fee (for those taking liquidity via market orders). Although individual fees are usually small, over time, their total can become significant.

Main Functions and Services of a CEX

A centralized exchange performs several key functions simultaneously:

Order matching — the primary function that facilitates supply and demand. When you want to buy Ethereum and another trader wants to sell it at a certain price, the system connects them.

Clearinghouse function — the exchange acts as an intermediary between you and another trader. Although technically you are executing a trade with another user, from the transaction registry perspective, it is conducted through the exchange. This provides an additional layer of privacy and protection.

Asset storage — one of the most critical functions. The exchange takes responsibility for storing both traditional currencies and cryptocurrencies. Most professional platforms store the majority of assets in cold wallets — wallets not connected to the internet. This makes assets inaccessible to online hackers. Only the funds needed to ensure liquidity are kept in hot wallets.

Exchanges also often offer advanced trading tools: limit orders, stop-losses, margin trading, and leveraged trading. These tools give more experienced traders greater control over their strategies.

Advantages of Centralized Platforms

Despite criticism, CEXs remain the dominant form of entry into the crypto market, and this is no coincidence.

Ease of use — modern exchange interfaces are intuitive even for beginners. Over years of industry development, user experience has significantly improved. Today, traders do not need special knowledge to perform basic operations.

Security and guarantees — large platforms invest millions in security protocols. Moreover, many insure user funds and are ready to compensate for losses in case of a hack — although this is not a 100% guarantee, the level of protection remains quite high.

Wide selection of assets — one CEX often offers trading in hundreds of cryptocurrencies, making it a versatile solution.

Additional services — many platforms offer crypto staking, NFT marketplaces, P2P exchanges, and other services, allowing you to manage assets in one place.

Fiat conversion — you can easily deposit via bank transfer or card and withdraw cryptocurrency into traditional currencies.

Challenges Faced by CEXs

However, centralized exchanges have serious drawbacks that critics see as contradicting the very essence of cryptocurrencies.

Hacking risk — hackers regularly target large platforms. Although most assets are stored in cold wallets, funds in hot wallets remain vulnerable. History shows that even well-protected systems can sometimes fail due to human error or unknown vulnerabilities.

Custodial storage — a fundamental issue for crypto enthusiasts. When your assets are on an exchange, the private keys remain with the company, not with you. There is a well-known saying: “Not your keys, not your coins.” The exchange can theoretically confiscate or freeze your funds with the push of a button — and history has examples of such cases.

Fees — although usually small, they are charged for every transaction, which can add up with active trading.

Regulatory risks — since CEXs are operated by centralized companies, they are subject to the jurisdiction of different countries. Changes in legislation or actions by regulators can affect platform accessibility.

Contradiction to the philosophy — centralized management of the platform directly contradicts the principles on which blockchain technology is built. For true decentralization advocates, this is a significant drawback.

DEX as an Alternative: Differences and Similarities

Criticism of centralized exchanges led to the creation of decentralized alternatives — DEXs. These platforms are built on smart contracts and operate entirely on blockchain without central management.

The first DEXs faced a serious problem — lack of liquidity, making trading on them nearly impossible. Everything changed with the advent of automated market maker (AMM) technology. This innovation allows users to deposit their tokens into special pools and earn rewards for providing liquidity, while the platform uses these pools to execute orders.

DEXs differ significantly from CEXs:

• No central management — the platform is governed by code and community, not a company.
• No custodial storage — you retain full control over your private keys by connecting your personal wallet to the DEX.
• No traditional fees — instead, users pay for gas (network transaction fees).
• Direct interaction — trades are executed directly between participants without a company acting as an intermediary.
• Require technical knowledge — using DEXs is generally more complex for beginners.

How to Choose Between a CEX and a Decentralized Exchange

The choice between a centralized and a decentralized exchange depends on your priorities and experience.

Choose a CEX if:

• You are a beginner and value ease of use
• You need fiat deposit options
• You prefer a single interface for different assets
• You are willing to sacrifice some decentralization for convenience

Choose a DEX if:

• You are an experienced trader and value full control over your assets
• You share the philosophy of decentralization
• You are ready to understand technical aspects
• You seek platforms that do not require verification

Currently, centralized exchanges remain the main gateway into the crypto market due to their accessibility. However, DEXs are rapidly evolving and will only increase their role as user interfaces and liquidity improve.

Regardless of the exchange type you choose, remember important security rules: do not keep large sums on trading platforms longer than necessary, use hardware wallets for long-term storage, and always keep your private keys secure.

Frequently Asked Questions

What does the abbreviation CEX stand for?

CEX stands for Centralized Exchange. It is a platform for trading cryptocurrencies managed by a single organization responsible for security, asset storage, and order matching.

Can you give an example of a major CEX?

One example of a major centralized exchange is OKX. The platform offers both a traditional centralized trading service and a decentralized version (OKX DEX) for those who prefer greater autonomy.

How does CEX differ from DEX in terms of security?

In a CEX, the responsibility for security lies with the platform itself, which stores the private keys of your wallets. In a DEX, you retain sole control of your keys. This makes DEXs more secure from custodial risk but requires the user to have greater responsibility and knowledge.

Are the fees on CEX higher than on DEX?

CEXs typically charge explicit trading fees, usually around 0.05–0.5% of the transaction amount. DEXs’ main cost is network gas fees, which depend on blockchain congestion and can be lower or higher than exchange fees. Additionally, DEXs often charge fees for liquidity pools.

Can the security of funds on a centralized exchange be guaranteed?

Most reputable CEXs insure assets and have modern security protocols. However, no full guarantee exists. It is recommended to withdraw funds after completing trades and store main assets in personal wallets or hardware storage.