This is the third lesson in the charliedesk Classroom foundation course. The previous lessons explained what a wallet is and what it means to "own" a cryptocurrency. Now we look at the three most common places where people get crypto, and break them down using three simple questions: Who holds the coins? How is the price set? What does it cost?
We will show everything using one concrete example. Let's say Petra wants to buy ETH (Ethereum) for 1,000 euros. We will walk through what happens at each of the three places.
So what exactly is an exchange, a broker, and a DEX?
Let's define the three terms right at the start, because they often get confused.
- Exchange (specifically CEX, i.e. centralized exchange): a company that runs a marketplace. It does not trade against you itself, it just connects people who want to buy with people who want to sell. Examples like Coinbase, Kraken, or Binance work this way.
- Broker: a company that sells crypto to you directly, or buys it from you. You are not trading with another user, you are trading with the broker. This is how many "simple" buy buttons in apps and plenty of fintech apps work.
- DEX (decentralized exchange): a set of smart contracts (programs) running on a blockchain. There is no company behind them holding your coins. You trade directly from your own wallet. Examples are Uniswap or Curve.
We have a more detailed comparison of the CEX and DEX terms in the glossary under the entry "cex-dex".
Who holds your coins?
This is the most important question of the whole lesson, because it decides what happens when something goes wrong.
On an exchange (CEX) a simple rule applies: as long as the coins are on the exchange, the exchange holds them, not you. You have a balance with it, which is a record in its database. The private keys (the secret password that actually controls the coins on the blockchain) are held by the exchange. Hence the well-known phrase "not your keys, not your coins." When you want your coins fully under your control, you have to withdraw them from the exchange into your own wallet.
With a broker it is similar, sometimes even worse from a control standpoint. Many brokers only let you buy and sell, but not withdraw the coin to your own wallet. In that case you never hold the actual cryptocurrency, only a claim against the broker. Whether a particular broker allows withdrawal varies from one to another, and that is something you need to verify with the given provider.
On a DEX you hold the coins the whole time. The trade happens directly between your wallet and a smart contract. At no point do you hand the keys to a third party. That is the main difference with a DEX: control over the coins never leaves your wallet. The price you pay for this is that you are responsible for the security of your own keys, and when you make a mistake, there is no one to call.
How is the price set?
Here the three models differ the most.
On an exchange the price is set by the order book, i.e. the list of all buy and sell orders. Petra sees that the best offer to sell ETH is, say, 3,000 euros. When she places a market order, the system matches her with sellers. The price is the result of what supply and demand agree on at that moment. The gap between the highest bid to buy and the lowest offer to sell is called the spread.
With a broker the price is set by the broker. It takes some reference market price and adds its margin (markup). Petra often does not see an order book, she sees just one number: "buy ETH for X." That number tends to be a bit worse than the price on an exchange, and part of the broker's earnings is hidden in that difference.
On a DEX like Uniswap the price is often not calculated by an order book but by a formula. The most widespread model is the AMM (automated market maker). Simply put: a "pool" (liquidity pool) holds two assets, for example ETH and a stablecoin, and the price is derived from their ratio. When Petra buys ETH from the pool, she removes ETH and adds a stablecoin, which nudges the price of ETH in that pool slightly upward. The larger the trade relative to the size of the pool, the bigger this shift, which is called slippage.
What does it cost? An example on 1,000 euros
Now for the most concrete part. Costs are made up of several layers, and you rarely see them as a single figure. The following numbers are an illustrative example, not current market data, and are only meant to show where the costs arise.
| Where | Visible fee | Hidden cost | Network fee |
|---|---|---|---|
| Exchange (CEX) | trading fee, e.g. 0.1 to 0.5 % | spread in the order book | only when withdrawing to your own wallet |
| Broker | often "0 %" or a small fee | margin baked into the price (spread) | sometimes you cannot withdraw at all |
| DEX | pool fee, e.g. 0.3 % | slippage on larger trades | you always pay gas (network fee) |
Let's walk through Petra's 1,000 euros:
- On an exchange with a 0.2 % fee she pays roughly 2 euros in fees plus a small spread. If she leaves the coins on the exchange, she does not deal with a network fee for now. When she withdraws them to her own wallet, a network fee is added.
- With a broker that advertises a "zero fee," the real cost can easily be higher than on an exchange, because it is hidden in the price. Whether it is 0.5 % or 2 % you can only tell by comparing the offered price with the price on an exchange at the same moment.
- On a DEX she pays the pool fee (0.3 % for a common pool, so about 3 euros), plus gas (a network fee) that does not depend on the size of the trade but on network load, and on larger orders slippage as well. Gas can be a few cents or several euros depending on the network and the moment.
The key point is this: "zero percent" almost never means free. The cost just shifts from an obvious fee into the spread, the margin, or slippage.
Which model is "best"?
None of them. Each solves a different trade-off, and that is why all three exist side by side.
- An exchange gives you liquidity and a fair market price from the order book, but it holds your keys.
- A broker is the simplest to use, but for that convenience you pay with a worse price and sometimes with the impossibility of withdrawing the coins at all.
- A DEX lets you keep your keys and access to tokens that are not available elsewhere, but you pay gas, risk slippage, and are responsible for security yourself.
charliedesk fundamentally does not tell you what to choose. We tell you how it works, so you can make the decision yourself and know what to ask.
What you should now be able to do
After this lesson you should be able, at any place where you can get crypto, to answer three questions:
- Who holds the coins? (Me in my own wallet, or a company on my behalf?)
- How is the price set there? (Order book, broker's margin, or an AMM formula?)
- Where is the cost hidden? (Fee, spread, margin, gas, slippage?)
When you can answer these three questions, you understand 90 % of the difference between an exchange, a broker, and a DEX.
What remains uncertain
- Specific fees vary from provider to provider and change over time. The numbers in the table are an illustration, not a current price list. Always verify the actual price with the given place at the moment of the trade.
- Whether a particular broker allows withdrawal to your own wallet is a matter of its terms, which cannot be generalized.
- The legal and tax status of the individual models differs and evolves within the EU. This lesson explains the mechanics, not regulation or taxes.