An ad exchange is a digital marketplace that facilitates the buying and selling of online advertising inventory. It acts as a mediator between advertisers and publishers, helping them connect and transact in real-time. Here’s a breakdown of its functioning and types:


Inventory Auction: what is an ad exchange conduct real-time auctions for ad space on websites and apps. When a user visits a webpage or uses an app, the available ad space is put up for auction.
Real-Time Bidding (RTB): Advertisers bid on this ad space in real-time based on various parameters such as audience demographics, browsing history, and the value they place on reaching that specific user.
Dynamic Pricing: The highest bidder wins the auction, and their ad is displayed on the webpage or app in milliseconds, often before the page even loads. The price paid for the ad space is typically determined by the second-highest bid, ensuring efficient pricing.

Open Exchange: Also known as a public exchange, this type allows any advertiser or publisher to participate in auctions. It offers a wide range of inventory but may lack quality control.
Private Exchange: These are invitation-only exchanges where specific advertisers and publishers transact. They offer more control over the inventory and audience targeting.
Preferred Deals: In this type, advertisers and publishers negotiate fixed-price deals for ad inventory outside of the auction process. This can offer more predictable pricing and guaranteed inventory.
Programmatic Guaranteed: Similar to preferred deals, but with automated execution. Advertisers and publishers agree on terms and prices upfront, and the transactions are executed programmatically.
Overall, ad exchanges play a crucial role in the digital advertising ecosystem by enabling efficient buying and selling of ad inventory across a wide range of publishers and advertisers.