Day 3: Exchanges in India: how to choose
Most Indians buy through an exchange. Today: what an exchange does, what FIU-IND registration means and what fees really cost. About 5 minutes.
1. Crypto exchange
A crypto exchange is a platform where you can buy, sell and trade cryptocurrencies. Centralised exchanges (CEXs) are companies that hold your funds, verify your identity, match buy and sell orders in an order book, and connect to banking rails for deposits and withdrawals in rupees or dollars. Decentralised exchanges (DEXs) are smart-contract protocols that let users trade directly from their own wallets. When choosing a centralised exchange, compare trading fees, spreads, withdrawal fees, the depth of its order books, its security record, whether it publishes proof of reserves, and its regulatory status where you live. Exchanges are custodians: while coins sit in your exchange account you rely on the company's solvency and security. Withdrawing long-term holdings to a wallet you control removes that risk.
In India: Exchanges serving Indian users must register with FIU-IND as reporting entities under the PMLA. They deduct 1% TDS on sales, and 18% GST applies to their fees.
More on Crypto exchange →2. Spot trading
Spot trading means buying or selling a cryptocurrency for immediate delivery at the current market price, the "spot" price. If you buy 0.01 BTC on the spot market, those coins are credited to your account straight away and you own them outright; you can hold them, withdraw them to your own wallet or sell them later. This is the simplest and most common way to trade crypto, and it is different from derivatives such as futures and options, which are contracts that track the price of an asset without you necessarily owning it. With spot trading, the most you can lose is what you put in, because there is no borrowed money involved unless you deliberately use margin. Spot markets are organised as trading pairs, such as BTC/INR or ETH/USDT, and orders are matched on an order book. Fees are usually a small percentage of each trade, with separate maker and taker rates.
In India: Every spot sale of crypto in India is a VDA transfer: 1% TDS is deducted on the sale value (above the thresholds) and any gain is taxed at 30% plus cess, with no set-off of losses.
More on Spot trading →3. Trading pair
A trading pair shows which two assets are being exchanged in a market and how one is priced in terms of the other. In BTC/INR, bitcoin is the base asset and the rupee is the quote asset, so a price of 75,00,000 means one bitcoin costs ₹75 lakh. In ETH/BTC, ether is priced in bitcoin. Exchanges list many pairs. Fiat pairs such as BTC/INR let you trade directly with rupees. Stablecoin pairs such as SOL/USDT are often the most liquid, because global trading is concentrated in dollar stablecoins. Crypto-to-crypto pairs, such as ETH/BTC, let you swap one coin for another without going through fiat. Liquidity can differ widely between pairs of the same coin, so the same token may have a tighter spread and less slippage on its USDT pair than its INR pair. Converting between pairs usually costs a fee on each leg of the trade, so a direct pair is often cheaper than two separate trades.
In India: Swapping one crypto for another, for example ETH for USDT, is itself a transfer of a VDA in India. It can trigger 1% TDS and a taxable gain on the asset you gave up, even though no rupees changed hands.
More on Trading pair →4. Bid-ask spread
The bid-ask spread is the gap between the highest price a buyer is currently willing to pay (the bid) and the lowest price a seller is willing to accept (the ask). If the best bid for bitcoin is ₹74,90,000 and the best ask is ₹75,00,000, the spread is ₹10,000, or about 0.13%. The spread is a hidden trading cost. If you buy at the ask with a market order and immediately sell at the bid, you lose the spread even if the price has not moved. Liquid markets, such as BTC/USDT on large exchanges, often have spreads of a fraction of a basis point; small tokens or thinly traded INR pairs can have spreads of several percent. "Instant buy" features in some apps hide the spread by quoting a single price, which can be noticeably worse than the order-book price. Using limit orders, choosing liquid pairs and checking the order book before trading can reduce what you pay.
More on Bid-ask spread →5. PMLA and crypto
The Prevention of Money Laundering Act, 2002 (PMLA) is India's main anti-money-laundering law. On 7 March 2023, the Finance Ministry issued a notification bringing virtual digital asset service providers under the PMLA as "reporting entities". This covers businesses that exchange VDAs for fiat or other VDAs, transfer them, provide custody or wallets, or offer financial services related to token sales. As reporting entities, these platforms must register with the Financial Intelligence Unit - India (FIU-IND), verify customers through KYC, maintain transaction records, appoint a principal officer and report suspicious transactions. The rules apply to offshore exchanges serving Indian users too. In December 2023, FIU-IND issued show-cause notices to nine offshore exchanges, including Binance and KuCoin, for operating in India without registration, and the government asked for their websites to be blocked. Binance later registered and paid a penalty of ₹18.82 crore in 2024. The Enforcement Directorate also uses PMLA powers in crypto fraud investigations.
In India: Using an exchange registered with FIU-IND is the simplest way to check a platform is operating legally in India.
More on PMLA and crypto →
Do this today
Compare exchanges →FIU-IND status, fees and INR withdrawals of nine exchanges, from official pages.
← Day 2Day 4: Crypto tax in India: 30%, 1% TDS →
General information, not financial advice.