How Exchanges
Work.

Every exchange maintains an order book — a running list of all open buy and sell orders for each trading pair. The buy side shows prices people are willing to pay. The sell side shows prices people are willing to accept. Where they meet, trades happen.

You do not need to look at the order book to trade. Simple interfaces like Coinbase's default mode hide it entirely and just show you a “buy” button. But understanding that it exists helps you grasp why prices move and why fees differ.

A market ordersays “buy now at whatever the current price is.” It executes instantly. The downside is that you accept the best available price, which in a fast-moving market might be slightly worse than what you saw on screen.

A limit ordersays “buy only at this price or better.” You set your price and wait. If the market reaches your price, the order fills. If not, it sits open until you cancel it.

For small purchases, market orders are fine. For larger amounts, limit orders give you price certainty. Most advanced interfaces default to limit orders for this reason.

Exchanges charge two different fee rates depending on your role in the trade.

A makeradds liquidity to the order book — you place a limit order that does not fill immediately. You are “making” the market. Exchanges charge makers less because they want more orders on the book.

A takerremoves liquidity — you place a market order or a limit order that fills instantly against an existing order. You are “taking” from the book. Takers pay more.

On Coinbase Advanced, makers pay 0.40% and takers pay 0.60%. On OKX, makers pay 0.08% and takers pay 0.10%. The difference adds up quickly if you trade regularly.

In the UK, any firm offering cryptoasset services must register with the Financial Conduct Authority for anti-money-laundering compliance. Operating without registration is illegal.

FCA registration does not mean your funds are protected. Crypto is not covered by the Financial Services Compensation Scheme. But it does mean the exchange has passed identity verification checks, has systems to detect suspicious transactions, and is subject to ongoing FCA oversight.

Over 87% of firms that applied for FCA crypto registration since 2020 were rejected or withdrew their applications. The bar is not trivial. If an exchange holds FCA registration, it has at least cleared the minimum threshold of regulatory seriousness.

You can verify any exchange's status on the FCA Financial Services Register.

When you buy crypto on an exchange and leave it there, the exchange holds your private keys. This is custodialstorage. The exchange controls the crypto on your behalf. It is convenient — you can trade instantly — but you are trusting the exchange to keep your assets safe.

Non-custodial means you hold your own keys, typically in a hardware wallet or software wallet you control directly. Nobody can freeze, seize, or lose your crypto except you. The trade-off is responsibility: lose your keys or seed phrase, and your crypto is gone permanently.

Most beginners start custodial and that is fine. But understand the distinction. The crypto world has a saying: “not your keys, not your coins.” For larger holdings, consider moving assets to a wallet you control.

When you buy Bitcoin on an exchange, the exchange records that you own a certain amount in its internal ledger. The actual Bitcoin sits in the exchange's wallets — pooled together with other users' holdings.

This is similar to how a bank works. Your account shows a balance, but the bank does not keep your specific banknotes in a box with your name on it.

The risk: if the exchange is hacked, goes bankrupt, or mismanages funds (as FTX did in 2022), your balance on their ledger may not translate to actual crypto you can withdraw. This is why regulation, security practices, and proof-of-reserves audits matter.