By Nathan Ferguson
Making money is the common goal of cryptocurrencies. In addition to some unlucky trades, other factors wipe out our money: the fees. Trading apps, cryptocurrencies exchanges, and other service providers charge for every transaction they execute; some even ask for extra fees. They may be charged small amounts for such expenses, but they may result in significant losses, mainly if you trade frequently. This article addresses an essential subject. They are introducing cryptocurrency exchange fees. Exchanges make money by charging fees to their users and selling advertising space, and setting ICO projects that wish to list their token on an exchange listing fees.
To keep exchanges in existence, you need to accept that they charge a fee. How much should the cost be? It is a more difficult question. The following three groups of fees are organized in a classic chronological sequence: deposit fees, trading fees, and withdrawal fees.
We will now examine the main fees are new crypto traders should be aware of:
Exchange Fees
One of the benefits of cryptocurrency exchange is that buyers and sellers can exchange currencies. Cryptocurrency exchanges generate revenue primarily from fees. The fees for crypto trading platforms vary slightly depending on the conversation, but you find the same terms for deposits, withdrawals, and trading most of the time.
Fee types for crypto exchanges
The following types of fees are associated with cryptocurrency exchanges:
- Trading Fees — exchanges earn most of their revenue from trading fees. Trades between fiat and crypto and crypto-crypto are typically subject to these fees.
- Deposit/Withdrawal Fees — Deposits and withdrawals are often subject to fees. Since exchanges want to reward users for funding their accounts, deposit fees vary according to the type of deposit made. Withdrawal fees, however, are much more common. Some exchanges charge a flat fee for cryptocurrency withdrawals regardless of the amount withdrawn. In contrast, others charge an additional fee based on the country or type of departure (crypto or fiat).
- Interest/Borrowing/Liquidation Fees — Certain cryptocurrency exchanges, including Kraken, Poloniex, and Bitfinex, allow margin trading, meaning you can borrow or synthetically borrow funds to increase your position. Margin exchanges charge additional fees depending on the amount borrowed on margin and the number of funds available. Additionally, you may be charged an additional fee if your trade goes against you and liquidates the position.
Discounts
- Market Makers & Volume Discounts – To encourage liquidity on exchanges, some exchanges provide lower trading fees to “market makers,” traders placing limit orders rather than market orders, and high volume traders.
- Exchange Token Discounts — Exchanges have become increasingly common to discount exchange fees for cryptocurrency token buyers. This system is being used by several non-US exchanges, such as Binance, Huobi, and Bibox, to incentivize token investments. In four to five years, the businesses will gradually reduce the amount of the discount until it completely disappears.
Deposit fees
Most crypto exchanges don’t charge fees for transferring funds. This policy is attractive to new users. While some websites encourage fiat money trading, others may charge small fees for cryptocurrencies deposits. Banks and payment service providers usually charge clients to transfer funds to cryptocurrency platforms. For processing funds directly from a credit card, they may charge a fee of 1.8% to 5%. Usually, bank transfers are free, but there may be a few days’ delays.
The fees associated with cryptocurrency exchanges can be divided into deposit fees and withdrawal fees. It is usually possible to deposit cryptocurrency on a business without paying fees. You have pleased them enough by deciding to place the cryptos there. When you deposit fiat currencies, there are almost always fees involved. Deposit fees are determined by the method of payment used. The costs associated with bank transfer deposits are typically lower than those associated with credit or debit card deposits. The main reason is that banks and credit card providers charge exchanges for processing payments. Deposit fees can reach as high as 11% for credit card deposits at specific discussions.
Flat Fees
Fee models that are known as flat fees are also ubiquitous. “Flat fees” are charged to both makers and takers on exchanges that have them. If investors are interested in picking up orders from the order book (and thus being takers), this could be an appealing trading fee model. Many exchanges, including Binance and Huobi, use the flat fee model. Moreover, the fees for trading on many exchanges are reduced when volume increases, which means you are rewarded for doing more trading. So, if you’re a cryptocurrency trader with high volume, you might find the fees listed on the exchange websites are taller than what you’ll have to pay when you make a trade.
Conversion fees
To convert cryptocurrencies from one to another, cryptocurrency exchanges or wallets charge fees. Currency exchange from traditional (fiat) money to cryptocurrencies is subject to conversion fees.
Trading fees
Trading fees are the primary charge cryptocurrency exchanges impose on users. Everyone pays them every time they buy or sell cryptocurrencies. In cryptocurrency trading, maker and taker fees are included. Buying and selling orders are the most significant difference between both. In any trade, two parties are involved: person 1, who places the order matching (or “making”) the person 1’s order, and person 2, who places the order matching (or “taking”) the person 1’s charge.
They refer to Person 1 as a “maker” since they are the one who executes the order. The second person is the “taker,” as they are the ones that receive the demands made by the maker. Makers’ orders create market liquidity. The takers remove this liquidity, who matchmakers’ orders with their own. Makers typically pay a smaller fee than takers. Since liquidity providers are paid less, makers receive a smaller payment. Exchanges charge both takers and makers fees based on the value of the order. Assume that the taker fee is 1% and that you purchase Bitcoin for $100. It would mean that after the exchange charges its costs, you would receive Bitcoin for 99 dollars.
- Maker fee
Market makers are responsible for paying the maker fee. A market maker is a trader who puts in a buy or sets an order with a settled price. Market makers execute their orders whenever the conditions are met. Consider a scenario where you place a buy order at $0.99 for a coin. Upon a price drop below $1.00, order fulfillment will take place. When it rises above $1.00, the order remains pending until it is canceled or the price falls to $0.99.
- Taker fee
Market takers are those participants who agree to buy or sell assets immediately and are charged a taker fee. As a result, they agree with the current price, and their orders match the market makers. Taker fees are higher than maker fees, but that is because takers rob the market of liquidity while makers provide it. Nevertheless, both costs are charged only when an order is executed.
- Spread fee
There might be crypto exchanges that do not charge maker or taker fees but charge spread expenses instead. Spread refers to the difference between a cryptocurrency trading pair’s purchasing and selling prices. A fixed percentage of the difference in price between buy and sell will be charged to you by the exchange. The spread fee is not unusual on crypto exchanges; it may vary depending on the cryptocurrency. A coin is purchased at $0.90 and sold at $1.50. Therefore, the spread is $0.60. A 0.75% spread fee, which amounts to $0.0045 on the $0.6 price difference, is applied to the space.
Withdrawal fees
A withdrawal fee applies whenever you move digital assets from your crypto wallet to another exchange. These fees are usually intended to cover the transaction costs of leaving the platform. However, they are not entirely set themselves. Withdrawals are subject to network charges and exchange fees. However, the exchange charges a percentage of the total transfer value to cover its operating costs despite not having control over the network fee. Different cryptocurrencies have different withdrawal fees because of network fees. Each cryptocurrency uses its blockchain. Fees for withdrawals are generally fixed, regardless of the amount withdrawn. If you start BTC, the withdrawal fee is the same irrespective of how many BTC you withdraw.
Consequently, there are network fees associated with the blockchain behind BTC, and these fees are based on “fees per transaction” rather than “fees per BTC.” The network fee is the only fee that many exchanges charge. Each blockchain transaction is subject to a network fee. Consumers are benefited from this. When cryptocurrency exchanges charge withdrawal fees, there is one step up in consumer friendliness, however, when the business pays the network fee. Users would be exempt from withdrawal fees. That makes it very competitive for consumers.
What is the Average Crypto Withdrawal Fee?
The average fixed withdrawal fee has only ever been studied empirically in one study. The study, conducted by us here at Cryptowisser, examined 218 different exchanges charging set BTC-withdrawal prices to determine the average global industry fee of 0.000812 BTC. A recent empirical study by Cryptowisser.com (in June 2020), which included more than 400 exchanges, indicated that average withdrawal fees had decreased, with the average withdrawal fee having come down to about 0.00061 BTC per withdrawal.
Extra fees
Users may be charged additional fees by cryptocurrency exchanges, trading platforms, and apps. Trading will involve not just paying for the execution of their buy and sell orders but also for other services. Users may be charged an inactivity fee if they do not trade frequently or an extra cost for maintaining their accounts.
Crypto Network Fees
There are several types of blockchains used by cryptocurrencies. A new block is created after each transaction has been processed, verified, and added. Miner and validator compensation need to be provided for their work in this process. These fees are referred to as network fees. Blockchains become more crowded when more transactions are done on them, and as a result, they become more popular. A transaction is queued and awaits confirmation, taking hours or even days.
Users may accept higher network fees if they wish to get a priority and confirm orders quicker. When it is crowded, network fees can become extremely high. Every time cryptocurrency investors move their coins from one wallet to another or from one platform to another, they must pay network fees. Some crypto exchanges take network fees and allow users to transfer assets between wallets within the same platform freely.
Income taxes
Various jurisdictions worldwide have different legal statutes and regulations related to cryptocurrency. Investors can avoid paying taxes on cryptocurrency gains does not necessarily mean that they can avoid paying taxes on cryptocurrency losses. Crypto traders may be required to declare their cryptocurrency sales profits to local revenue services, depending on the jurisdiction. The total income is determined by taxes paid and varies depending on local laws.
Cryptocurrency Exchanges
Fees are summarized for three of the most popular exchanges for trading cryptocurrency.
Binance
In 2017, Binance was founded and had become one of the top cryptocurrency exchanges in only a few years. The exchange was trading more cryptocurrencies than any other in 2021. In the United States, Binance.US is restricted to a few hundred cryptocurrencies due to regulations, while cryptocurrency enthusiasts have a wide range of options on Binance.
Fees and withdrawal limits may apply to Binance, depending on how you use the platform. You’ll pay 0.25% spot trading fees and 0.25% 30-day trading fees when using VIP ratings based on your trading volume. The maker/taker fees are 0.1%/0.1% for traders with volumes under $50,000. The fees decrease in tiers from there. Any fees associated with Binance’s cryptocurrency BNB are discounted by 25%.
Additionally, the cryptocurrency exchange fee is 0.5%. U.S. traders can trade cryptocurrency and tether (USDT) pairs, as well as cryptocurrency and dollars, although they have limited options. You can also change these pairs over the counter or trade advanced strategies based on their price movements.
Coinbase
Coinbase created a cryptocurrency financial system in 2012 to make cryptocurrencies accessible to everyone. An IPO and Nasdaq listing in April 2021 made the exchange publicly traded. Thousands of cryptocurrencies are on sale. As well as ether transaction fees, Coinbase will also charge you Ethereum gas fees.
FTX
In addition to FTX, you can also use U.S.-based exchange services to trade cryptocurrency internationally. Several dozen are available on the international exchange, while several dozen more are available on the global business. You are rewarded for trading more if you use FTX’s tiered fee structure. Maker/taker fees become cheaper as your trading volume increases. Making or taking money on the spot market incurs different costs. You might also pay fees to transfer money into or out of a stock exchange via wire transfer or automated clearing house (ACH).
Cryptocurrency Exchange Considerations
To buy or sell cryptocurrency on an exchange, traders should consider the following factors:
- Fee schedules: You may have to pay for wire transfers (sending and receiving funds from your bank account), mining, history, sport, and tiered transaction fees.
- Location: The world is home to many unregulated exchanges, and some of them are only available in particular areas
- Availability: Not every cryptocurrency is listed on every business.
Fee Schedules
Cryptocurrency exchanges frequently have tiers of “maker” and “taker” fees. The system creates tiers and charges maker and taker fees accordingly according to your trading volume. Makers make markets on cryptocurrency exchanges by selling cryptocurrency, and takers purchase cryptocurrency off of them. Both parties charge transaction fees, but makers tend to pay less than takers. Cryptocurrency exchanges structure their fee schedules to encourage frequent trading of large amounts worth thousands of dollars. As trader volume increases on a 30-day basis, fees often decline.
Coinbase, for instance, imposes 0.50% maker and taker fees on trades with a volume less than $10,000, while trade volume more than $10,000 reduces in tiers. Coinbase offers four pricing tiers: You also pay less in the higher tiers as a maker since makers increase market liquidity, so the exchange can continue to exist.
Instead of charging per-transaction fees, most exchanges now charge a combination fee schedule similar to the one used by Coinbase. In conclusion, you should avoid small and infrequent trades on cryptocurrency exchanges unless you’re looking to buy a cryptocurrency—most charge a spot trading fee for purchasing and taking possession of a digital coin on an exchange.
Location
Cryptocurrency exchanges are generally not regulated by most countries. Some of the world’s biggest trading markets for cryptocurrency have not implemented any regulations. U.S. exchanges offer fewer services than their counterparts outside of the U.S. because they are regulated.
Availability
Several popular cryptocurrency exchanges do not offer all coins. Others offer hundreds while others offer only a few dozen. Getting access to cryptocurrencies may require you to use a variety of exchanges.
Conclusion
In conclusion, when assessing a specific exchange’s fee structure, you have to consider all the fees taken together. Would you consider the withdrawal fees high but the trading fees low? No thanks. The exchange charges low withdrawal fees but charges high trading fees? Unacceptable. All payments must be considered. Fees are charged by exchanges when you deposit money with them, transact at a conversation, and withdraw your profits and losses from a business.