ZydoSEO - 3:42 pm on Jan 10, 2013 (gmt 0)
There is a big difference between a "link exchange" and a "reciprocal link".
A link exchange is generally a service that you pay to be a member of, and all paying members agree to post links on their site to other members of the exchange. There is usually some scripting that you agree to install on your site to render the links from the service. These links are more times than not between sites that are not at all relevant to one another. Yes. This will get you penalized should you be caught participating in such a program or service.
A reciprocal link, on the other hand, is typically perfectly fine so long as the two sites "exchanging" the links are relevant to one another, there is no paid incentive for the linking, and the users of both sites would benefit from the link to the other. Government agencies do it. Educational institutions do it. Associations in various fields do it. Hobbiests with similar interests do it. Most all of them do it without even knowing what the acronym SEO stands for. It's perfectly natural for them to do so. This is not "banned" by Google's Webmaster Guidelines.
Based on how lotusindustrial worded their question, I think piatkow and definitely myself thought that lotusindustrial was refering to exchanging "reciprocal links", not participating in a "link exchange" program.
I would never advocate the participating in a link exchange. But I have no problem with reciprocal linking as long as it is done between truly relevant sites where users on both sites benefit and the number of reciprocal links making up your backlink profile is in line with others in your same vertical.