On a crypto exchange, looking at the fee structure and differing percentages can seem quite overwhelming at a first glance. Almost every exchange platform has a different fee structure and it’s hard to generalise between them. What we can do is understand what each fee means with a goal to better understand what you are paying for. This should help you be able to compare costs across each exchange when you begin your research to decide on a platform.
Types of crypto exchange fees
Cryptocurrency exchanges are businesses that are looking to earn money regardless of the price of the cryptocurrency they are selling. They charge users fees and earn a commission based on the user’s trade. The number of the fees are determined by how you are profiled as an investor – are you a maker or a taker?
Maker VS Taker fees
Crypto exchanges may determine whether you are a maker or taker based on whether you increase or decrease the size of the order book. If your order of cryptocurrency can be matched with existing orders, you are seen to be taking liquidity from the market and are a taker’. For example, in simple terms, one person is selling 1BTC and another person is looking to buy 1BTC that is available. The person who buys the available BTC is a taker as they take the available crypto off the market. You are determined to be a maker if you are adding liquidity to the market by putting in an order which creates a demand for more trades. Because of this, exchanges often offer lower fees to makers because they add liquidity to the market.
Discounts for native tokens
Exchanges can also offer discounts for traders who invest large amounts of money. Another discount is often given for those who trade an exchange’s native cryptocurrency token, for example, popular exchange Binance has a token called Binance Coin and they offer a discount for traders who buy it on their platform.
Discounts for volume traded
Another factor that can affect trading fees is how the exchange calculates them which is important to understand before choosing a platform. A number of exchanges will charge a flat fee despite the volume of coins traded or transactions. The majority of exchanges will charge a volume-based fee structure which allows traders a lower fee if they trade more within a certain time period. This can be beneficial if you have a significant amount to invest or are looking to trade coins regularly.
Deposit and withdrawal fees
Deposit fees may apply to you depending on the method of payment that you use (i.e. how the money comes from your bank account to the exchange platform). You may also be charged for cryptocurrency deposits if you’re transferring coins. For example, depositing or transferring Bitcoin may have a different price than if you were to use Ethereum or another altcoin.
Withdrawal fees can also differ between exchanges. The majority set the base cost as the blockchain transaction cost, whereas other platforms may charge additional fees dispensing on the currency conversion (between fiat or crypto coins), the location of the transaction and the amount that you are wishing to withdraw.
Unlike exchange fees that are set by the exchange platform, transaction fees are determined by the market rate for transaction verification on the blockchain network. These fees are distributed as a reward to the people who mine crypto or verify the transaction, and the network is set up to automatically process the highest transactions in terms of the fees users offer.
Network fees are incredibly variable and often dependent on the demand of the coin being processed. For example, Blockchainexplore.com reported that in July 2020, the fees on the Ethereum network were US$5.50, but by November 2020, they dropped to US$0.13. Within the same time frame, an average Bitcoin network transaction fee decreased from US$6.80 to US$0.50.
What do these fees mean for you?
As an investor, the variance in these fees emphasises the need to research exchange platforms and understand the fees that would apply to you. Having a clear understanding of how you will use your exchange before investing should help to ensure you choose a platform that suits your needs.
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