Why people prefer custodial wallet?
1. They can generate more coins by staking etc.
Bitcoin protocol doesn't have staking mechanics. So the custodial wallet/exchange do something else with the Bitcoin, such as lending it to other people that comes with loss risk.
2. It's cost efficient, they don't need to pay transaction fee, trading very is very cheap.
Although it could cost more if they need withdraw Bitcoin to certain address, since services earn profit by charging high withdraw fee.