Exchanges are platforms for users to trade currencies with other users.
The usual flow is that users deposits dollars, euros, bitcoins, or whatever into their account on an exchange, and then use their account balance to offer a trade for whatever they want to acquire. The exchange merely offers the platform, matches and executes the trades, and facilitates deposits and withdrawals. The exchange itself is not participating in the trades. Since users can only trade whatever balance they have in their accounts, the exchange also guarantees that the counterparty has the funds to participate in the offered trade.
There is another distinct business model, called a brokerage, where users directly purchase from the platform. In that instance, the brokerage is the counterparty for all trades and must acquire stock to sell, e.g. from miners minting fresh bitcoins, exchanges selling off the trading fees they collected, or market makers with large holdings.
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