Crypto Trading Fees Decoded: How To Navigate Cost and Optimize Trading Strategies
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No matter if you trade stocks, bonds, forex or crypto, you will, at one point, find yourself paying fees for trades. Depending on the exchange you are trading on, you will pay different fees, some higher than others.
Trading fees are a necessary evil in trading. Cryptocurrency exchanges these days offer a wide variety of products, all of which come with their own set of fees. From buying and selling crypto to withdrawing your money from the exchange, you are bound to be charged a fee for trading activities.
After all, trading fees are how exchanges make money, and how they can keep their business running. Let’s dive into what these different fees are, and how they can impact your trading success.
But before diving into the different types of fees, let’s touch on some basics for our newcomers!
What Are Crypto Trading Fees?
Nothing in this world ever comes free, and the same goes for crypto trading. Exchanges charge fees to traders for two reasons; to keep the platform running and to make money. No matter if you use leverage or if you want to send your crypto to one of your wallets, fees will be charged.
How big this fee is depends on the exchange. For this reason, seasoned traders are always on the lookout for quality platforms with lower fees, and exchanges are constantly in a fierce battle, trying to offer better fees than the competition.
Some exchanges these days go as far as not charging any trading fees at all. For example, a few exchanges these days offer fee-less trading on specific spot pairs, as an incentive for traders to use their platform. Some offer complete fee-less trading in exchange for staking or holding a certain amount of their token.
Some exchanges also offer tiered fee structures, charging lower fees to traders that bring higher volumes to the platform as a reward for their contribution.
Types of Crypto Trading Fees
There are different types of fees in the crypto markets, both on CEXes and DEXes. Let’s discuss the most common ones traders run into on their trading journey.
What Are Maker and Taker Fees?
Maker and taker are two of the most common fees in crypto. They are the cost of buying in spot or opening and closing futures positions. The kind of fee you are charged for these trades depends on the kind of order you use for your transaction.
As we discussed in our recent article on order types, order books are a kind of database with all buy and sell orders listed. Exchanges want to keep these books as full as possible so that large orders can easily be filled. To encourage traders to help build the order book, they charge higher fees to orders that take away liquidity from the market in comparison to the orders that add liquidity to it.
Specifically, taker fees are charged to orders that decrease the liquidity in the order book, whereas the lower maker fees are charged to those that help add to it. For example, a market order is filled at the best available price in the order book. As these orders take away liquidity, they are charged the higher (taker) fee.
Limit orders are filled at a lower maker fee, which – depending on the order size – might even be a negative fee, resulting in money paid to the trader.
Fees Associated With Leverage Trading
Most exchanges these days offer leverage trading – a way for traders to borrow additional capital to take on larger positions than they can technically afford. You may refer to our explainer on leverage trading for more information on this topic.
The common mandatory warning in European loan commercials “Caution! Borrowing money costs money” fits the crypto market as well. Exchanges charge additional fees based on the borrowed capital, and this fee can fluctuate depending on the demand for leverage. Moreover, if your leverage trade gets liquidated, you will likely be charged an additional liquidation fee.
What Are Funding Fees?
Funding is a mechanism exchanges use to maintain a balance between the price of perpetual futures and the price of the underlying asset. When perp prices are trading below the underlying asset, buying needs to be incentivized. This is achieved by charging a funding fee to sellers, which is paid to the buyers. Simply put, funding fees are charged to one side of the trade and paid to the other side of the trade.
Funding is recalculated every funding period to keep the balances in check.
Read more: What Are Funding Rates?
What Are Network and Gas Fees?
When venturing off the centralized platforms, decentralized exchanges are not free either. Network fees are charged to reward those that uphold the mechanism of the blockchain. On Proof-of-Work chains, like Bitcoin, miners are paid block rewards for processing transactions, whereas stakers are rewarded for validating transactions on Proof-of-Stake chains.
These fees vary per chain, and even per day. For example, in the previous bull run, Ethereum gas fees spiked up significantly during the NFT bull market.
What Are Withdrawal Fees?
Because of these network and gas fees, exchanges usually charge a withdrawal fee to cover the cost of your transactions on that chain. Luckily, exchanges usually offer a wide range of withdrawal options, with (in some cases) incredibly cheap network options to choose from. For example, a USDT transaction on Tron is much cheaper than withdrawing the same amount of USDT on Ethereum.
Closing Thoughts
In sum, crypto has different fees to take into account. These fees vary depending on various factors. It is important to be aware of the fee structure on the platform you are using and compare this to other exchanges as well.
Higher fees can eat away at your profits, especially when you are entering and exiting multiple trades per day. Taking some time to read up on the fee structure of your exchange of choice is definitely worth your time.
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