An exchange is an organized marketplace in which financial instruments – such as cryptocurrencies, commodities, and securities – are traded. An exchange may operate on a real-world facility or on a digital platform. Many traditional exchanges, which were initially restricted to physical trading, are now providing digitized services as a way to enable electronic trading (also known as paperless trading).
One of the main functions of an exchange is to provide liquidity within a secure and organized trading environment, acting as an intermediary for traders to easily buy and sell their assets while being less susceptible to financial risks.
Exchanges may be classified according to the type of trade being executed. Classical exchanges are the ones that perform spot trades (immediate settlement). On the other hand, there are exchanges that provide derivatives trading, such as futures and options.
Exchanges may also be classified according to the financial instruments being traded: cryptocurrency exchange, stock or securities exchange, commodities exchange, and the foreign exchange market (Forex). But, many exchanges provide a variety of services and trading options. For instance, many commodities exchanges are also offering futures trading.