How a crypto exchange works
A customer opens an account, passes identity checks and deposits money or crypto-assets. The balance is credited on the exchange's own ledger, and orders are placed against it.
On most centralised exchanges, orders meet in an order book kept by a matching engine: a buy and a sell at a compatible price become a trade, and both balances are updated at once. The exchange earns a fee on each trade. Nothing moves on a blockchain until a customer withdraws.
The parts of a crypto exchange
- Onboarding: identity checks and risk scoring
- Wallets: deposit addresses, hot and cold storage, withdrawals
- Ledger: every balance, hold and fee
- Matching engine and order book, with market data feeds
- Fiat rails: bank transfers and card payments in and out
- Compliance: transaction monitoring, Travel Rule messages and reporting
How a crypto exchange is regulated in the EU
Under MiCA, bringing together many third parties' buying and selling interests in crypto-assets is operating a trading platform, a service that needs authorisation as a CASP. Holding customers' assets is a second service, custody. Recital 22 of MiCA says that services provided in a fully decentralised manner without any intermediary should not fall within the regulation's scope.
Exchange, broker or on-ramp?
- Broker
- Takes a customer's order and executes it on someone else's venue or against a liquidity provider. A broker has no order book of its own.
- On-ramp
- Sells crypto-assets at a quoted price for card or bank payments, one customer at a time.
- OTC desk
- Quotes a price for a large trade and deals as the counterparty, away from the public order book.
Where a crypto exchange shows up in a platform
Modules that do the work
- Matching engineA low-latency order book for spot markets, with market makers and outside liquidity.
- Custody & walletsWallets on every major chain, with MPC custody from leading providers or your own keys.
- Market dataLive and historical prices for crypto, stocks and FX, from the data vendors you choose.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
Platforms that need it
Guides that go deeper
- What does it cost to launch a crypto exchange?Licensing, capital, technology, liquidity and people: where the money goes when you launch an exchange, and which of those costs depends on how you build.
- MiCA checklist: launching a crypto exchange in the EUWhat the EU's Markets in Crypto-Assets Regulation asks of an exchange: authorisation, capital, governance, client assets, the trading platform rules, and the laws that sit beside it.
- What a crypto exchange licence costs: fees and capital by regulatorThe application fee, the yearly fee and the capital a crypto exchange needs under MiCA, the FCA, VARA, ADGM and the DFSA, as each regulator publishes them, and when each falls due.
Where it is written
The laws and standards this page's facts come from.
General information, not legal advice: what applies to you depends on your services and your market.