A hot wallet is a cryptocurrency wallet that stays connected to the internet and stores the private keys needed to access and move funds. It produces fast, on-demand access to your crypto, which suits frequent trading and everyday transactions.
The wallet holds or manages your private keys on an internet-connected device, such as a phone app, desktop program, or an account on an exchange. Because it is online, it can sign and broadcast transactions in seconds, but that same connectivity exposes the keys to a wider range of remote attacks than an offline setup.
A cold wallet is the opposite approach: it keeps the private keys offline, away from the internet, trading convenience for tighter security. The common pattern is to keep a working balance in a hot wallet for activity and a larger reserve in cold storage.
You keep 200 USD of crypto in a hot wallet for active trading and 1,800 USD in cold storage.
When a trade comes up, you move funds from the hot wallet instantly:
200 USD hot (online, ready) + 1,800 USD cold (offline, reserved) = 2,000 USD total
The hot balance is exposed to the internet for speed, so you keep it small and hold the bulk offline.