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What is a crypto exchange?
A crypto exchange is a company or service where people buy, sell and trade crypto, often for dollars or other government money. Most hold customers' coins for them and record who owns what in their own books.
What it means for you
Coins left on an exchange are held by the company, and FINRA notes that crypto trading platforms are not registered with the SEC and lack the protections of stock exchanges or brokers. The FTC notes crypto in accounts is not government-insured like an FDIC bank deposit. Check whether you can withdraw to your own wallet, and what that costs.
A common mistake: “Coins on an exchange are mine, held on the blockchain in my name.”
In fact: On most exchanges the coins sit in the company's own wallets and your balance is an entry in its books. If the company freezes withdrawals or fails, that entry is a claim on the company.
How it works
The IMF lists three ways crypto exchanges usually differ from stock exchanges: retail customers deal with them directly, some trade from their own inventory rather than only matching buyers with sellers, and many also hold customers' coins. Trades inside the exchange are then just entries in its own books, off the blockchain, so they carry the company's credit risk, hacking risk and single point of failure. FSOC notes customers can be locked in during distress: when large platforms froze withdrawals, more than a million customers each could not reach their funds. FINRA notes platforms registered only as money services businesses owe anti-money laundering duties, not investor protection.
Sources: FINRA: Crypto Assets, FTC: What To Know About Cryptocurrency and Scams, IMF: Regulating the Crypto Ecosystem (Fintech Note 2022/007), FSOC: Report on Digital Asset Financial Stability Risks and Regulation 2022 · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.