If you have a good website, someone is going to want to exchange a link with you. If you know SEO, you know this is a good thing. But there are many things to be aware of when exchanging links, especially because many link building service companies may take advantage of someones lack of SEO knowledge. Here are some pointers to avoid bad link exchanges:
First of all, don't do two-way link exchange. This is when you link to a website with the agreement that the website links back to you. This may have worked a few years ago but because people abused that type of link exchanges, the search engines stopped acknowledging those type of links. To much rank manipulation... you know. So if someone e-mails you that type of link exchange request, bend it to your advantage or refuse it.
Now, the three-way link exchange may be the most common type link exchange request these days. This type of link requires a third party website to link to you so that you link to a different website. Usually the webmaster requesting this type of exchange will have an extra website like that ready to link to you for a link from yours to another. But there are still to many wannabe link building pros out there that try to take advantage or even jeopardize someones website. It is important to know that a bad link to your site can cause bad ranking as well. So when someone offers to link to your website, check out the website, see if it is ranked for it's domain name and hopefully title tags. If its not, then that webmaster is probably trying to cheat you.
The best way to do it is, find out the page rank, the traffic and the outgoing links from that website. If it's a good website, go for it. Maybe even ask if that webmaster has more such sites to exchange links with.
