Centralised and Decentralised ExchangesCEX
A centralised exchange (CEX) is a company that holds customers’ funds and matches their orders in its own order book. A decentralised exchange (DEX) runs on smart contracts: you trade directly from your own wallet, usually against liquidity pools rather than an order book.
There are two very different ways to trade crypto. One looks like a normal broker: you sign up, deposit money and the company holds it. The other looks like a website, but the trading happens in code on a blockchain and your coins never leave your wallet. Each has different costs, features and — most importantly — different risks.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 4 min
- Also called
- CEX vs DEX, Crypto exchanges, Custodial and non-custodial exchanges
- Updated
CEX and DEX in plain words
On a centralised exchange you deposit assets first and trust the company to look after them; while deposited, they are at risk because exchanges are targets for hackers.1
A DEX lets you trade tokens whenever you want without giving up control of your assets.1 Many DEXs use an automated market maker instead of an Order Book.2
Holding coins with any custodian means depending on its security and solvency — Counterparty Risk.3
How to choose between a CEX and a DEX, step by step
Decide who holds the keys
On a CEX the company does; on a DEX you do.1
Check what you need
Fiat deposits, Leverage and support usually mean a CEX; on-chain tokens usually mean a DEX.
Compare costs
CEX Trading Fees and Commissions and spreads vs. DEX pool fees, Slippage and network fees.
Check protections
Many crypto assets are not protected by investor protection schemes such as SIPA.4
Secure your wallet
On a DEX, your security is your private key.4
Limit exposure
Keep only what you need on any platform.1
Worked examples
Example 1 — Fees on a CEX
Fee $2You buy $2,000 of a coin on a CEX with a 0.1% fee.
| Fee | $2,000 × 0.1% = $2 |
| Coins received | $1,998 worth |
Simple and cheap — but the coins stay with the exchange, which is a target for hackers.1
Example 2 — Costs on a DEX
Total cost $20You swap $2,000 on a DEX: 0.3% pool fee, 0.5% price impact and a $4 network fee.
| Pool fee | $2,000 × 0.3% = $6 |
| Price impact | $2,000 × 0.5% = $10 |
| Total cost | $6 + $10 + $4 = $20 |
You kept your own keys, but a large order in a shallow pool pushed the price against you.2
Example 3 — Concentration on one exchange
$8,000 less exposedYou keep $10,000 of crypto, all on one CEX. Alternatively you keep $2,000 there and $8,000 in your own wallet.
| Exposed if the CEX fails (all-in) | $10,000 |
| Exposed if split | $2,000 |
| Reduction | $10,000 − $2,000 = $8,000 less at risk |
Coins held by an exchange depend on that company’s security and solvency.3
CEX vs. DEX
| Aspect | Centralised exchange (CEX) | Decentralised exchange (DEX) |
|---|---|---|
| Who holds the assets | The exchange | You, in your wallet |
| Matching | Order book | Usually liquidity pools |
| Sign-up | Account and identity checks | Connect a wallet |
| Main risk | Exchange failure or hack | Smart contract bugs and user error |
When each is used
Buying with fiat
A CEX usually offers bank or card deposits.
Leveraged trading
Futures and margin are mainly on CEXs.
New tokens
Many tokens trade on DEXs first.
Self-custody
Trading without handing over your coins.
Advantages and disadvantages
Advantages
- CEX: easy to use, fiat access, deep order books.
- DEX: you keep control of your assets.
- DEX: open to anyone with a wallet.
- CEX: customer support and account recovery.
Disadvantages
- CEX: your funds depend on the company’s security and solvency.
- DEX: smart contract bugs and scam tokens.
- DEX: price impact and network fees on larger trades.
- Both: protections like SIPA often do not apply to crypto.
Going deeper
Read as far as you need. Each level builds on the one before it.
Custody is the key difference
Beginner
How prices are formed
Intermediate
Common mistakes
Assuming deposits are insured
Most crypto is not covered like a bank or broker account.
Trading fake tokens on a DEX
Anyone can create a token with a familiar name.
Ignoring DEX costs
Forgetting price impact and network fees.
Keeping everything on one CEX
Concentrating counterparty risk.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A CEX holds your funds and runs an order book.
- A DEX lets you trade from your own wallet.
- CEX risk is the company; DEX risk is the code and your own security.
- DEX costs include fees, price impact and network fees.
- Crypto is often not covered by investor protection schemes.
Frequently asked questions
Is a DEX safer than a CEX?
Do I need an account on a DEX?
Can I buy crypto with my bank card on a DEX?
Further learning
- Counterparty Risk
The main risk of a CEX.
- Order Book
How CEXs match trades.
- Slippage
A key cost on DEXs.
- Exchange
Exchanges in general.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- ethereum.org. Decentralized finance (DeFi) (opens in a new tab) Checked .
- Uniswap Docs. How Uniswap works (opens in a new tab) Checked .
- Bitcoin.org. Frequently Asked Questions (opens in a new tab) Checked .
- FINRA. Crypto Assets (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.