Exchange wallet is where your assets that you will use to place trade orders are stored. This covers both fiat currencies and cryptocurrencies.
Thus, you need to transfer the asset that you have in your primary wallet to your exchange wallet if you want to use them for any trade transaction.
Any gain or loss of asset that was the subject of your trade order will be carried out in your exchange wallet.
You will need to transfer the assets that you have in your exchange wallet to your primary wallet should you wish to do non-trade transactions such as sending this to another wallet or cashing out.