CEX is a centralized exchange: A complete guide for crypto traders

CEX is a platform for trading crypto assets operated by a specific company or organization. In recent years, crypto trading has become more accessible, but before you start trading, it’s important to understand how these platforms are structured and what to pay attention to when choosing one.

CEX is a centralized management structure

CEX stands for centralized exchange. Unlike decentralized platforms, such an exchange has a single control center — a company that created it and oversees all key processes.

Historically, centralized exchanges were the first in the crypto industry. Initially, they allowed anonymous trading, but over time, global regulators began requiring platforms to implement KYC (Know Your Customer) procedures. Now, almost every CEX requires identity verification before trading. This change was not accidental — regulators were concerned about money laundering and the use of exchanges for illegal purposes.

Why it’s important to understand how CEX works

Before trading on exchanges, you need to know the main mechanisms of their operation. Cryptocurrency prices can change rapidly, sometimes within minutes. This attracts experienced traders but discourages beginners, especially if they don’t understand how trading on exchanges works.

CEX offers traders various risk management tools: limit orders, stop-losses, margin trading, and leverage trading. These features can help you earn more or lose more, so they should be used carefully.

How trading on a centralized exchange is structured

The trading process on a CEX involves several steps. First, you create an account and go through identity verification. Then, you deposit funds — these can be fiat money (rubles, dollars) or cryptocurrency.

Once your account is activated, you can place orders. For example, you set an order to buy a certain amount of Bitcoin. This order goes into the order book — a list of all active buy and sell offers. When someone else places a sell order for the same amount, the system automatically matches these orders and executes the trade.

Important point: you are not buying cryptocurrency directly from the exchange. You buy from another trader, and the exchange acts as an intermediary. For this service, the exchange charges a transaction fee — this is its main source of income. Fees are usually small (0.1-0.5%), but if you trade frequently, they can add up.

Where your assets are stored and how this affects security

When you deposit funds on a CEX, they are stored in custodial custody by the exchange. Most serious platforms keep the majority of assets in cold wallets — wallets not connected to the internet, making them inaccessible to hackers.

However, some funds are stored in hot wallets — connected to the internet to ensure liquidity for trading. This part can be targeted by attacks. Exchanges protect assets with numerous security protocols, but the risk still exists.

There is a well-known crypto philosophy: “not your keys — not your coins.” This means that as long as your assets are on the exchange, technically, they are under the company’s control. The exchange can freeze or confiscate funds at its discretion. This doesn’t mean it will necessarily happen, but legally, such a possibility exists.

Pros and cons: honest analysis

Main advantages of CEX:

First, they are easy to use. Most modern platforms have an intuitive interface, which even beginners can understand. They provide technical support and asset insurance — if a hack occurs and funds are stolen, the exchange often compensates losses.

Second, a wide range of services is available on one platform: various trading pairs, crypto staking, NFT marketplaces, launchpads for new projects, P2P exchanges. This is convenient for portfolio management.

Third, liquidity on CEX is much higher than on decentralized alternatives. This means you can quickly buy or sell the desired amount of assets without a sharp price jump.

Main disadvantages of CEX:

The main drawback is custodial storage. You do not own the private keys to your wallets. This creates legal and practical risks of confiscation or freezing of funds.

Second, transaction fees. Every order incurs a fee, whether buying or selling. They seem small at first glance, but with active trading, they can become significant.

Third, risk of hacking. Despite investments in security, exchanges remain targets for hackers. History shows that even large platforms sometimes suffer attacks, often due to human error or discovered vulnerabilities.

How to choose between CEX and decentralized exchanges

With technological development, an alternative has emerged — decentralized exchanges (DEX). They operate based on smart contracts and do not require central management. Users trade directly without an intermediary.

Decentralized exchanges use automated market maker (AMM) technology. Instead of a traditional order book, DEXs use liquidity pools. Users deposit token pairs into these pools and earn rewards for providing liquidity. DEXs do not require identity verification, and your assets remain in your personal wallet.

However, DEXs have disadvantages: liquidity may be limited, the interface is often more complex, and there are no services for buying crypto with fiat money.

Which option to choose?

The answer depends on your goals. If you’re a beginner and want to trade various assets safely, CEX is currently the best option. Most successful traders start with centralized platforms.

If you value anonymity and full control over your keys, DEXs may suit you. But be prepared for a more complex interface and potentially higher fees.

Practical advice: do not keep large sums on the exchange for a long time. Make a trade, then withdraw assets to your personal wallet. If you plan long-term storage, use cold storage (hardware wallet) — this is considered the safest method.

Frequently asked questions

What is a CEX?

A CEX is a centralized platform for trading cryptocurrencies, managed by a company. It offers high liquidity, a user-friendly interface, and various trading tools, but requires verification and holds your assets in custody.

What is the difference between CEX and DEX?

CEX is managed by a company and requires verification. DEX operates on smart contracts, does not require verification, and offers more freedom but less convenience and liquidity.

Is CEX safe?

CEXs are generally safe thanks to many security protocols, but the risk of hacking exists. The main risk is custodial storage — the company can freeze your funds.

Is it necessary to always use CEX for trading?

No, there are alternatives. DEXs allow trading without verification but with less liquidity. The choice depends on your priorities: convenience (CEX) or anonymity and control (DEX).