A centralized crypto exchange is a platform that helps people to buy, sell or swap digital assets using fiat currencies and other cryptocurrencies. Simply put, it’s where you go to have someone help you exchange one type of currency – fiat money or cryptocurrency – for another.
The term centralised itself is seldom actually used to describe a CEX – it simply refers to the fact that the exchange is operated and managed by a company. This company or exchange handles all of your transactions on your behalf, and even stores any funds you deposit with them in their own wallets. You access a CEX through your own account and are assigned crypto wallets opened under the exchange’s management.
This is where the term custodial is also sometimes used to describe centralised exchanges, since they are the trusted intermediary that acts as asset custodians, by storing and protecting customer funds.
Since CEXs first emerged around 2010, they continue to be the most widely-used method to buy and trade cryptocurrency. In most countries, CEXs work closely with regulators to ensure they meet minimum industry standard for security, tax requirements and financial legislation. It is quite common, therefore, for a centralised exchange to obtain various banking, trading and financial institution licenses and permits to allow them to operate in their respective jurisdictions.
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