A crypto exchange is a platform where people buy and sell Bitcoin and other digital assets for rupees or dollars. It works much like a stock trading app and a stock exchange combined in one company.
An exchange keeps an order book: a list of everyone who wants to buy, and at what price, and everyone who wants to sell. Its matching engine, the core program of the exchange, pairs a buy order with a sell order at the same price. When it finds a match, the exchange moves the rupees from the buyer's account to the seller's account, and the Bitcoin the other way.
Say a buyer in Kochi places an order to buy 0.001 Bitcoin at ₹9,000. A seller in Jaipur has already offered 0.001 Bitcoin at ₹9,000. The matching engine pairs them in a fraction of a second. Both balances change on the exchange's own records straight away. The trade itself is usually not written on the blockchain. The blockchain is used only when someone moves crypto into or out of the exchange.
Indian exchanges offer three main kinds of trading. Spot trading means buying the asset itself at today's price. Margin trading means trading with money borrowed from the exchange. Futures and options are contracts on the future price of an asset, explained in futures and options (F&O).
Rupees usually come in through a UPI app or a bank transfer. Before anyone can trade, the exchange completes KYC, the identity check. It also uses AML transaction monitoring to look for signs of money laundering, such as many small deposits that suddenly leave the country as crypto. Indian exchanges must report such cases to the Financial Intelligence Unit (FIU-IND).
An exchange holds a great deal of its customers' crypto. It keeps most of it in offline storage, protected by MPC wallets and crypto custody, and only a small amount in online wallets for daily withdrawals. Large investors often skip the open order book. They trade through crypto OTC and prime brokerage desks, where big trades are agreed privately.
Engineers at exchanges work on the matching engine, which must stay fast during sudden price crashes, and on the systems that keep every customer's balance correct.