i dont think its bad at all. its actually a good way to build high quality links. link exchange doesnt always mean i have to interlink two sites. i can ask a webmaster to put a link of my site on his website and in return i can put his link in one of my other website.

As long as those links are bringing you seriously good traffic, they are worth having.

If anything is a "bad practice" then be warned not to rely on it for your income. It's the icing on the cake, okay? Bad practices might just be the target of the next update - and on the roll-out of that update your profits get trashed.

You raise a good point opportunist,

Yes, in theory Google does not want people intentionally creating links to their site. For the goal of that ranking factor to be accomplished, links have to happen naturally. The problem is, everyone who cares about ranking a website already knows that this is used as a ranking factor. As mentioned by the other members, as long as things look natural and the links are beneficial, there is no problem with exchanging a link.

Further, I think there are various points along a spectrum where practices fall that Google may be more or less concerned with. On the spectrum for link exchanges, there are those where maybe two webmaster collaborate on blog posts and in the process exchange links to each other sites. And then there are scenarios where a website is set up for the sole purpose of exchanging a link and maybe they charge for it. Maybe that same individual has dozens of domains and all they do with them is link them to other sites. The former scenario is the essence of a good user experience and hence will probably not be penalized down the road. The latter subverts the very idea of user experience and most likely will be targeted by one of the many Google algorithm updates.

All that being said, Google states in their quality guidelines about Link Schemes that “Excessive link exchanging” is what they don’t want. They don’t say “no” link exchanging. Perhaps a technicality?

Link schemes - Webmaster Tools Help

Best,
Shawn

As long as you are creating good links it wont hurt you. Just make sure you are not violating their terms and conditions such as keyword stuffing, cloaking, poor bad links and rehashing content.