When data traverses across the internet, it is repeatedly being re-routed and re-directed among networks. Sometimes, traffic on one network has to switch to a different network owned by another. Internet exchanges facilitate this kind of data transfer through a peering process which allows networks to forward traffic between each other’s networks without having to pay a third party to carry it across the internet for them. The primary purpose of an IXP is to allow networks to interconnect directly, via the exchange, rather than going through one or more third-party networks. The primary advantages of direct interconnection are cost, latency, and bandwidth.

A network is a group of two or more computers or other electronic devices that are interconnected for the purpose of exchanging data and sharing resources. An example of a network is the Internet, which connects millions of people all over the world. It consists of various organizations including Internet service providers(ISP), network service providers(NSP), Telecom & Voice Providers, Content Distribution Networks (CDN), Cloud Services, Hosting Providers, Educational and Enterprises, Security Providers, and other types of networks.

In a network without IXPs, traffic going from one network to another would potentially rely on an intermediary network to carry the traffic from source to destination. These are called transit providers. In some situations there’s no problem with doing this: it’s how a large portion of international Internet traffic flows, as it’s cost-prohibitive to maintain direct connections to every ISP in the world.