Glossary

Exchange

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An exchange is an institution which acts as a market-maker between parties who wish to buy and those who wish to sell. Exchanges facilitate trades between parties by displaying the bids of those who would like to buy an asset and the asks of those who would like to sell. If a buyer and a seller name the same bid and ask price respectively, the exchange will execute a trade between the two parties and collect a fee.

➤ Learn more about market making.

Almost all Bitcoin exchanges currently operate as custodians, meaning users deposit bitcoin at the exchange and withdraw it when they are done trading. During this time, the exchange maintains full control over the bitcoin, leading to security risks.

Related Terms
Brokerage
A brokerage is a financial institution which allows its customers to buy and sell assets directly. Brokerages differ from exchanges in that brokerages serve as the counterparty to its users in all transactions.
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Know Your Customer (KYC)
Know Your Customer Laws, Anti-Money Laundering, and Counter-Terrorism Financing Laws are all intended to combat illicit money transfers by mandating that all bank accounts be identifiable to individuals or organizations.
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Anti-Money Laundering (AML)
Anti-Money Laundering (AML) is a category of laws and regulations that are intended to prevent money laundering, terrorist financing, tax evasion, and other illicit activities.
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