Most of the exchanges (I am referring here to traditional, centralized exchanges) use a system based on order books, where buyers and sellers are matched to trade. The order book is a list composed of all currently active orders on a trading pair and shows the price and sum of all orders available at any given price. The total sum of orders creates the market.
Order books are used by almost any exchange for a large spectrum of assets such as stocks, cryptocurrencies, bonds, or currencies. Usually, there are three parts of an order book: buy orders (include information about the buyer, such as all the bids, the amount they want to purchase, and the ask price), sell orders (are similar to buy orders, this time for sellers), and order history (shows all the transactions that took place in the past).
Even though the purpose of the order book is to provide transparency to market participants, this is not always the case. That is because “dark pools“ coexist as well. Dark pools are batches of hidden orders, usually very large in value, coming from the big players that usually do not want to disclose their trading intentions. The existence of dark pools actually benefits the exchange because it prevents a price drop of certain securities. Such a price drop would happen when information about substantial transactions performed by a large institution is made public before the trade is executed. However, if information about the transaction is made public after the transaction took place, the impact on the market will be considerably lowered.