Skip to content
GetProfitable
Search

CEX, DEX, spot, derivatives, and why volume numbers lie

Lesson 4 · about 10 min

Crypto is traded in four overlapping venues. Which one you use determines who holds your money, what you pay, and how much of the volume you see is real.

Centralised exchanges (CEX)

A centralised exchange is a company. You open an account, pass identity checks, deposit money, and the exchange holds it. Trades happen on the exchange's own order book and are settled in its own database; nothing touches a blockchain until you withdraw.

What you get: fast matching, deep liquidity for major pairs, fiat on-ramps, customer support of some kind, and familiar order types.

What you give up: custody. The balance on your screen is a claim on the company. If the company is hacked, insolvent or dishonest, that claim may be worth nothing, which is the subject of Module 2.

Decentralised exchanges (DEX)

A decentralised exchange is a smart contract on a blockchain. You connect a wallet you control and trade directly from it. There is usually no order book; instead an "automated market maker" (AMM) holds a pool of two tokens and quotes a price from the ratio between them. Each trade shifts the ratio, so bigger trades get worse prices, which is slippage built into the maths.

What you get: no account, no KYC, no counterparty holding your funds, and access to tokens too new or small to be listed anywhere else.

What you give up: you pay network gas fees on every trade, you are responsible for every mistake (there is no support desk), and the token list includes thousands of outright scams, which Module 6 covers.

Spot versus derivatives

Spot means you buy the actual coin. It is delivered to your account and you can withdraw it to a wallet. Your maximum loss is what you paid.

Derivatives are contracts whose value tracks the coin's price without you owning the coin. In crypto, the dominant derivative by far is the perpetual future ("perp"), which Module 4 explains in detail. Perps let you use leverage and go short, and they can lose more than your initial margin.

The important structural fact: derivatives volume in crypto is several times spot volume. Most of the price discovery, and most of the sudden moves, happen in perps. If you only watch spot you are watching the tail, not the dog.

Key idea: Where you trade decides who holds your money and how much of what you see is real. A CEX holds it for you; a DEX leaves it with you; spot is the coin; derivatives are a bet on the coin.

Why volume numbers lie

The headline "24h volume" on aggregator sites is one of the least reliable numbers in finance. Reasons:

  1. Wash trading. Some exchanges, especially smaller ones, run bots that buy from and sell to themselves to appear busy and climb the rankings. A widely cited 2019 study submitted to US regulators concluded that around 95% of the reported BTC volume at the time was not economically real. Things have improved among the larger exchanges since, but the practice has not gone away.
  2. Zero-fee promotions. When an exchange charges no fee on a pair, bots trade it back and forth at no cost, inflating volume that no human would ever produce.
  3. Double counting. Aggregators sum volume across venues, and some venues report the same trade twice (once as a buy, once as a sell).
  4. Incentivised volume. Exchanges and projects pay rebates or token rewards for trading, which creates volume with no price opinion behind it.
  5. DEX volume from the token itself. A new token's "volume" may consist mostly of the deployer's own wallets trading in circles to attract attention.

The effect for you is direct: a coin that appears to trade $50 million a day may only have $2 million of real two-sided interest, and your $20,000 exit will discover that immediately.

How to get a truer picture

  • Look at volume on two or three exchanges you consider reputable, not the aggregate.
  • Compare volume with order-book depth (Lesson 2). Enormous volume against a shallow book is a wash-trading signature.
  • Check whether a "volume" figure is dominated by one exchange you have never heard of.
  • On DEXs, look at the number of distinct wallets trading, not the dollar figure.
  • Prefer aggregator "trust" or "adjusted" volume figures where offered; they exclude venues that fail statistical tests.

Try it: Pick a mid-cap alt. On an aggregator, list the top five exchanges by its volume. For each, note the volume and the 2% depth. Divide volume by depth. A ratio far above the others on the list is worth treating with suspicion.

A note on where beginners should trade

Start on one large, regulated centralised exchange with a long operating history, trade spot only, and keep only what you are actively trading there. Learn a DEX with tiny amounts when you are curious, treating the gas and mistakes as tuition. Leave perps until you have finished Module 4 and the risk management course and can state your liquidation price from memory.

Recap

  • A CEX is a company that holds your funds; a DEX is a contract you trade against from your own wallet.
  • Spot is ownership; derivatives are contracts, and perps dominate crypto's volume and price discovery.
  • Reported volume is inflated by wash trading, zero-fee bots, double counting and paid incentives.
  • Judge liquidity by trusted-exchange volume and order-book depth, never by the aggregate headline.
  • Beginners: one reputable CEX, spot only, minimal balances left on the exchange.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bid-ask spread in an order bookSell orders stacked above buy orders with a gap between the best of each.SELLERS (asks)50.0690050.051,40050.0460050.011,10050.002,30049.99800spread = 0.03BUYERS (bids)
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
Margin and leverageA small deposit controlling a much larger position, and the point at which losses trigger a margin call.Position you controlnotional value $100,000your margin deposit: $5,000$100,000 / $5,000 = 20:1 leverageYour deposit absorbs every dollar of loss$5,000$2,500$0Equity leftMARGIN CALLequity has fallen to $2,5000%1%2%2.5%3%4%5%How far the price moves against you
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Support, resistance and the flip between themA price path bouncing three times off a horizontal support line and turning back three times at a resistance line, then breaking above it and settling back onto the same level.RESISTANCESUPPORT62.0056.00breaks aboveold resistance,now supportIllustrative price path: the level stays the same, its role changes.
Support, resistance and the flip. Support is a price where buyers keep stepping in and the fall stops; resistance is a price where sellers keep stepping in and the rise stops. Once price closes above an old ceiling, that same level often acts as the new floor.

Finished this module? Take the module quiz.