Trading fees are applied every time you buy, sell, or trade cryptocurrency. Before or during the transaction, you suddenly come across various percentages or other unfamiliar rates added to the basic price of the coin. The whole thing can seem quite ambiguous: different trading/exchange fees, fluctuating network fees, and unreasonable deposit/withdrawal fees.
Well, how much and what exactly do you pay for when trading crypto? Is there any chance of skipping these charges?
Unfortunately, we can’t avoid fees. They’re the moving wheel of cryptocurrency exchanges and their exclusive source of revenue, which enables them to provide a secure transaction for both parties. However, the fee schedule doesn’t have to be as complicated as all those numbers appear at first glance.
Trading platforms differ to a great extent when it comes to fees, so we can’t single out one single fee pattern and discuss its behavior, giving you investment advice. What we can do is help you understand fees and be aware of what total transaction cost you can expect, because a single disregarded fee can negatively affect expected returns.
So, here’s our compact guide on what affects fees and how you can minimize high fees as much as possible. But first, let’s differentiate between the two main types of fees applied in the crypto ecosystem: exchange/trade fees and transaction/network fees.
Crypto exchanges earn by charging a commission on each trade executed on their platform. In most cases, they also apply deposit fees and nearly always charge for withdrawals. This puts crypto exchanges in a privileged position when it comes to daily trading revenues, as they seem to stay unaffected by frequent fluctuations of cryptocurrency prices.
There are two types of exchange fees depending on the position that users assume while trading, either as takers or as makers.
Maker vs Taker Fee
What defines your position as a maker or taker? In the simplest terms, it depends on whether you increase or decrease the size of the order book. When you generate an order which can be instantly matched with existing orders, you “take” liquidity from the market, thus you are a taker. On the other hand, when your order doesn’t pair with any of the existing orders you are given the position of a maker since you contribute to the market liquidity. In other words, makers add to order book liquidity through limit orders, while takers subtract liquidity through market orders. Naturally, exchanges encourage those who add liquidity by offering lower fees.
Crypto exchanges also give token discounts , which has become an increasingly widespread practice of offering discounted exchange fees for those who trade the exchange’s native cryptocurrency token. Several platforms, such as Binance, Huobi, and Bibox have created an incentive system to promote their tokens. For example, if you trade using the Binance native token BNB, you will get an additional 25% trading fee discount. Experienced traders can confirm how significantly this affects the total returns.
Another essential aspect that affects trading fees is the method by which they’re calculated. Some exchanges apply flat fees regardless of the volume traded, but the majority feature a volume-based fee structure lowering the trading fee proportionally as a user’s trading volume grows over a 30-day time frame. This has turned out to be quite advantageous for day traders and large-net investors.
To get the big picture, let’s see what fee systems apply to the most market-influential centralized cryptocurrency exchanges. (Keep in mind that most decentralized exchanges, particularly DeFi platforms, don’t incur trading fees, partly because they are still young on the crypto scene and need to be alluring to users, but also because they have lower operational costs.)
Maker fee Taker Fee Volume-based
Binance 0.1% 0.1% yes
Bittrex 0.35% 0.35% yes
eToro no official trading fees, but individual percentage spreads up to 0.75%
Kraken 0.16% 0.26% yes
Bitmex 0.025% 0.075% yes
Poloniex 0.125% 0.125% yes
Coinbase Pro 0.50% 0.50% yes
Deposit and Withdrawal Fees
Deposit fees differ according to the payment method you use but generally, they aren’t as common as withdrawal fees since exchanges stimulate users to fund their accounts. A considerable number of platforms enable fiat deposits through third-party providers and it’s the outsource money provider that actually charges a certain commission. This refers specifically to fiat currency payments using a credit card or a debit card, an international transfer linked to a user’s bank account, or a Bitcoin ATM. Cryptocurrency deposits (if any), are charged individually, based on the currency type.
A Bitcoin (BTC) deposit, for example, can have a different price than what you’d have to pay when funding your account with another crypto such as Ethereum (ETH), Litecoin (LTC), Ripple(XRP), Bitcoin Cash (BCH), Tether (USDT), etc.
When it comes to withdrawal fees, some exchanges don’t charge more than what the blockchain transaction costs and this is usually an insignificant, fixed rate. However, other crypto platforms apply additional fees depending on the location, type of currency, and the amount being withdrawn. Binance withdrawals will cost you between 1-15 US dollars. On Kraken, for example, expect a withdrawal fee ranging between $4- $35, while on Coinbase, they can reach up to 25 USD.
Other types of exchange fees
Some cryptocurrency exchanges like Kraken, Binance, and Bitfinex offer margin trading options, where users borrow digital assets to leverage their position. This opportunity doesn’t come for free so if you decide to trade on margin, be prepared for additional fees determined by the amount borrowed plus a calculated interest rate set by the lender. Furthermore, if your position gets liquidated, you will probably be charged an additional liquidation fee.
Transaction fees also referred to as network fees, are associated with decentralized or individual crypto trading models that don’t utilize intermediary brokerage services. Unlike exchange fees, they aren’t determined by the exchanges but represent the market rate for transaction verification on the blockchain network. Network fees are given as a reward to those who mine, validate, or verify the transaction code. They depend on the capacity of the network supply at the time of transaction and the user’s demand for priority. The network automatically processes transactions in order from highest to lowest in terms of the fees users offer.
Miners’ rewards depend on the system through which a particular blockchain network operates. For example, Bitcoin and Litecoin use the Proof-of-Work (PoW) model while Ethereum and Cardano acquire new crypto units through Proof-of-Stake (PoS). When it comes to PoW systems, miners are paid for the cost of electricity, while with the PoS model, they get rewards for locking up new crypto holdings or “stakes”.
Network fees also vary to a great extent. For example, in July of 2020, the fees on the Ethereum network were $5.50, but by November of the same year, they dropped to $0.13. Within the same time frame, an average Bitcoin network transaction fee decreased from $6.80 to $0.50.
There are several websites such as Blockcypher and Blockchain Explorer that provide a running database that tracks blockchain orders and the fees required to complete those orders so that users can determine what fee to offer to get the validation speed they want. Bitcoin transaction fees are quoted in Satoshi, the lowest denomination of Bitcoin that is 0.00000001 of the currency.
A Few Words Before You Go…
The general idea behind the blockchain industry is “liberating” the financial ecosystem when it comes to transparency and low fees. However, as it’s impossible to completely avoid charges, a potential crypto investor must learn how to handle them and what to expect.
So, clarify your personal trading aim before choosing the most suitable marketplace for trading crypto, meaning – find a crypto exchange that features a fee system that fits the frequency, amount, and digital asset(s) you plan to trade with.