What are the mechanics of a bitcoin exchange, or any 'classical' exchange that is?
Say I want to go back into fiat because the local Italian join doesn't like bitcoins...lol. Anyway.
I hop onto the exchange, (hear: any) and select the exchange of XBT to USD. I move bitcoins to the exchange and wait for confirmation. When the coins are confirmed, I execute the exchange and my bitcoins are gone and now I have USD. I then wire my USD to a bank account, hop into the car, go downtown, and get me some good lasagna.
Now, I'm not that knowledgeable about the exchange market so hear me out:
1.) Do the bitcoin exchanges have a single wallet that all funds go into, or does the user have their own?
Each exchange has its own wallet (wallets are different from addresses). However exchanges will give each person a different address to deposit to (but the address is still a part of their wallet). The different addresses reduces address reuse and helps them keep track of deposits.
2.) Do all exchanges of bitcoins to fiat or v-v exist on the main-chain or does it exist off chain?
Off chain. When you deposit, it goes into their database that you have X Bitcoins. When you exchange, their database changes so that you now have Y Bitcoin and Z USD. But no Bitcoin actually moved anywhere. The Bitcoin only moves when someone decides to withdraw their balance.
3.) How are prices determined? Are they a running average of all take/give prices of bettors/sellers?
With actual exchanges where you are trading with others, the price is determined by supply and demand. If more people are willing to buy, then the price goes up and vice versa. For exchanges where you are just exchanging Bitcoin for fiat with the actual exchange itself, they usually determine the price off of other exchanges and sets their own price which should be near the market price.
4.) What are the usual fees associated with the exchange?
1 - 2% usually