Aganju: Yes, it is one fair method, as well. Besides, the exchange you describe is a sub-case of the system I describe(when you challenge someone exactly above you, and you have not another stair matches concluded, the lower ranked winning would give him a step, the higher ranked losing would take away a step, so, essentially, they exchange positions).

However, consider this situation: The player directly above you is a great player that is not interested in challenging to advance. This keeps him/her at a low step, preventing everyone else to move above his/her position.

Result: Frustrated, the players will stop challenging and the ladder will stagnate

Solution: If you give the ability to challenge at a greater range, you can sidestep said player who, eventually, will be forced to make challenges to stay in his/her preferred position.