Crypto Trading Fees Explained and How To Minimize Them
Fees are an unfortunate but necessary part of trading cryptocurrency, and it’s impossible to interact with a public blockchain without experiencing some sort. Despite their prevalence, they can be poorly understood.
How much are exchange fees, and what exactly am I paying for? How much are network fees, why do they fluctuate so much, and what is their purpose? Are there other types of fees too?
A survey by Encrybit listed high trading fees as a main issue in exchanges, showing that it pays (literally) to understand this subject fully.
Let’s start with the basics.
There are two types of fees associated with crypto trading:
- Exchange fees
- Network fees (AKA Gas)
Exchange Fees
Cryptocurrency exchanges make money by charging a fee on every trade that is made on their platform. In most cases, they will also charge for deposits and almost always for withdrawals. This results in big business: through the first quarter of 2018, Binance made nearly the same profit as Nasdaq with only 4% of the staff.
Maker and Taker
Under this umbrella, there are two terms to know: maker and taker. A maker is a trader who creates a new trade on an exchange. A taker is a trader that matches a maker’s trade. Fees for each of them can be different. To give you an idea, here are some of the numbers pulled from top exchanges, both centralized and decentralized:
Binance — Centralized Exchange
Maker fee — 0.1%
Taker fee — 0.1% (Using their token, BNB, gets you a discount)
Deposit — free
Withdrawal — varies per token
Kraken — Centralized Exchange
Maker — 0–0.16% based on volume
Taker — 0.10–0.26% based on volume
Deposit — varies per token
Withdrawal — varies per token
Bitfinex — Centralized Exchange
Maker — 0–0.1%
Taker — 0.055–0.2%
Deposit — <$1000 USD varies, >$1000 USD free
Withdrawal — varies per token
IDEX — Hybrid Exchange
Maker — 0.1%
Taker — 0.2%
Waves — Decentralized Exchange
All trades — 0.003 WAVES (approx. $0.007)
What’s important to note is that very few true DEXs charge trading fees for their service, for a number of reasons. One is that many DEXs are still small and want to encourage people to use their platform, and charging no fees may incentivize that more. Also, operating costs can be lower on DEXs. This only adds to what positively sets them apart from centralized exchanges, and it pays to do your homework here so you are getting the best deal.
Network Fees
Network fees, also known as gas, are the second type of fees when trading crypto on decentralized exchanges. Instead of being arbitrarily set by an exchange, they are the market rate for actually verifying the transaction on the blockchain. They are set by and paid to the miner/validator/etc of the network (more specifically the miner that actually verified the block the transaction was included in).
An analogy works best here. Let’s say you have a car (your transaction), and this car needs fuel to operate (gas). Your engine (miner) consumes that fuel (miner fees) to take you forward.
For example, in a Proof-of-Work system, miners are rewarded for the electricity cost and processing power, and in a Proof-of-Stake system they are rewarded for locking up some of their crypto holdings as stake.
Network fees vary across the board. To give some perspective, the average network transaction fee on Ethereum hit around $5.50 USD in early July but now has hovered around $0.13 USD for all of November. Bitcoin’s average network transaction fee hit around $6.80 USD in June and has hovered around $0.50 USD for November.
As these are the market rates for the networks, they are largely impacted by demand. When the network becomes congested, fees can increase. Additionally, miners tend to include transactions with higher network fees into blocks sooner because that will, in turn, increase their profit. This can be a potential problem in the system if miner centralization occurs but is out of the scope of this article.
Users are generally allowed to set the transaction fee they are willing to pay for their transactions. If indifferent, the exchange will pre-set at the market rate.
Totle Fees
While in beta, Totle is completely free to use! You are still required to pay the accompanying DEX fee and network transaction fee, which we allow you to customize based on the urgency of your trade. This means the “Slow” option will cost the least but will take the longest and “Very Fast” will cost the most but execute the quickest.
See below for an example of our fee structure.
Conclusion
You can imagine that an active crypto trader making numerous trades a day would be very conscious of fees. They seem like a negligible amount at first but can easily eat into profit, especially with small transactions. The fee for sending $5 USD worth of crypto will be the same for sending $50,000 USD worth of crypto. This pain point can mean that small investors are less likely to enter or actively engage in the market.
There has been progress in this regard. The Ethereum network is in the process of implementing Plasma, which performs scalable, fast, and low-fee transactions off-chain. We can expect to see more movement towards these solutions on other platforms too.
At the end of the day, it’s up to the user to decide what fees they think are fair and act accordingly.
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