What's the difference between a Bitcoin Wallet and a Bitcoin Exchange

What's the difference between a Bitcoin Wallet and a Bitcoin Exchange

I was thinking about investing a small amount of money in Bitcoin: actually I'm having second thoughts about this, after all the fraud stories I've been told about on the Personal Finance site. However, that doesn't affect this question.

Reading this Investopedia article, I discovered that one should create a Bitcoin Wallet before buying Bitcoins on a Bitcoin Exchange such as Coinbase or Kraken. I don't understand why I should do that, isn't enough to download the Coinbase app, for example? Also, the link says that

While exchanges offer wallet capabilities to users, it’s not their primary business. Since wallets need to be kept safe and secure, exchanges do not encourage storing of Bitcoins for higher amounts or long periods of time. Hence, it is best to transfer your Bitcoins to a secure wallet.

What's the reason for that? If I buy stock options, no one would object to me keeping them invested for years. Then why can't I leave my investment on a Bitcoin Exchange for a long period?

  1. Do I risk that the Exchange goes bankrupt?

  2. Do I risk that someone hacks my account on the Exchange? If so, is that common?

  3. Something else?

Basically, I want to understand if, for the sake of investing a small amount of money in Bitcoins, it makes sense to put my "pocket money" in a Bitcoin Exchange and leave it there for a few years, or if the risk of fraud/hacking is so high that I should not do that. Note that this has nothing to do with the volatility of the Bitcoin investment - I'm ok with making a risky investment (a gamble) since it's just very little money. But I'm not ok at all with having my money stolen, even if it's a small amount.

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