If you’ve already started your journey into online crypto trading, you’ve probably familiarized yourself with the basics behind these cryptocurrency transactions along with the more popular trading platforms for crypto trading like Coinbase and Binance.
In your research, you must have learned that these transactions don’t come for free. Instead, there are different types of fees based on the type of transfer, the platform itself, and the payment method included.
For this reason, we’ve prepared an article that will shed some light on what crypto trading fees are and how they actually work. We’ll list a full guide in order to prepare you for the various payments you will have to clear before you can calculate your losses and gains, and remain one step ahead of your crypto assets gains and losses.
Types of Cryptocurrency Trading Fees
When dealing with cryptocurrency trades and transactions, there are two main types of fees incurred for the services provided by the cryptocurrency exchanges and regular purchases on the blockchain. Any type of purchase, trade, or crypto transaction incurs a transaction fee. These transaction fees are also known as network fees and they vary depending on the chosen cryptocurrency and network traffic.
When dealing with cryptocurrency exchange platforms, you will be introduced to the fees they charge for purchasing, selling, or exchanging digital assets. The fees charged by cryptocurrency platforms are known as exchange fees. These exchange fees vary from platform to platform and the total amount of digital currency you wish to transact. Most cryptocurrency exchanges charge high fees and it’s good to know exactly what and how much you have to pay before choosing the right platform for you.
Below you’ll find a detailed guide on every type of trade fee charged when trading cryptocurrencies.
Transaction or network fees are fees that crypto users have to pay to the miners for their work on the cryptocurrency blockchain. For Bitcoin, miners use powerful computers to verify and add the incoming transactions to the blockchain.
Cryptocurrency exchanges have no profit from the network fees as these are paid out to the miners or the validators on the network. In case the cryptocurrency network becomes congested, the network fees may increase. This is because miners would prioritize transactions that include higher fees. Network fees help them cover their expenses (high electricity costs and mining rigs maintenance), as the verifying process requires great processing power in order to successfully process the transactions.
For example, Bitcoin (BTC) and Ethereum (ETH) have higher network fees when compared to other altcoins such as Bitcoin Cash (BCH) and Ethereum Classic (ETC) because they have larger trading volumes or in other terms, the demand for them is far greater.
Network transaction fees are known to skyrocket when the price of a cryptocurrency suddenly increases or decreases and holders hit the panic button by selling their assets. This makes the network a bit congested and miners are overwhelmed by the number of network transactions.
Deposit and Withdrawal Fees
Crypto exchanges charge fees on cryptocurrency deposits and withdrawals along with the crypto trade fees, i.e taker and maker fees that are charged to users who place matching orders for purchasing or selling crypto.
Cryptocurrency exchanges usually don’t charge deposit fees for depositing cryptocurrencies. This feature is free as a token of trust because you’ve opted out to conduct your business on their trading platform. On the other hand, fiat currency deposits are almost always charged with some sort of fee.
The fee amount depends on the payment type you choose. Bank transfer deposits usually incur the lowest fees, while credit card and debit card deposits can reach up to 11% on some platforms (the average fee being 4-5%). The reason for this is that the exchange platform has to pay fees to the credit card providers for their services too.
You can bypass deposit fees if you purchase crypto with cash. Utilizing crypto ATMs can be a way of purchasing deposit fee-free crypto but their own commission fees can eat up a chunk of your initial deposit, mainly because their commission amounts between 7 to 9% of your transaction.
Withdrawal fees are fees that are charged to users who want to withdraw their crypto from the exchange platform to an external crypto wallet or bank account. They can be fixed or they can have several different tiers depending on the amount of crypto that’s withdrawn, the cryptocurrency itself, and, sometimes, your location in the world.
The most preferred method that cryptocurrency exchanges utilize is the fixed withdrawal fee method. This means that a flat fee of, let’s say, 1% will be incurred regardless of whether you withdraw 1 BTC or 1,000 BTC. After a survey of 218 cryptocurrency platforms, the technicians at Cryptowisser concluded that the global industry average withdrawal fee for Bitcoin amounts to 0.000812 BTC.
Maker and Taker Fees
Crypto exchanges utilize a popular fee structure called a maker and taker fee system. This fee is charged to traders for adding or removing (making and taking) liquidity on the platform.
A maker fee is applied when an order is placed on the exchange that adds to the liquidity of that exchange. This is an order that’s placed on the market for another trader to conduct, which in turn adds to the liquidity of the order books. Exchanges typically charge makers lower fees as an incentive to keep adding liquidity.
A taker fee is applied when an order is placed on the exchange that reduces the liquidity of that exchange. Taker fees are higher or equal to maker fees.
This might sound complicated, but we’ll explain with an example.
If John wants to buy Bitcoin at a lower price than the current market price of Bitcoin, he can place a buy order of $500 USD for 1 BCH. Then, he would have to wait until their buy order matches someone’s sell order. In this scenario, John is a maker because he makes or names a price at which he would like to purchase crypto.
If another user called Chris places a sell order on 1 BCH for $500, they are then taking up the maker user’s offer on the order book. When the transaction is completed, the maker (John) pays a lower fee because he purchased the crypto, while the taker (Chris) pays a higher fee because he sold some crypto.
There’s yet another type of trade fee – the crypto margin fee. These fees apply to traders who engage in crypto margin trading, a feature that some exchanges like Kraken offer, where users borrow capital from other traders or stakers or from the exchange itself in order to invest a larger amount of capital and potentially make a higher profit. These users pay a margin fee for the borrowed assets along with interest rates.
Margin trading is a popular investment in markets with low volatility and slower price movements such as the Forex market, but in recent times it’s become very popular with the fast-moving cryptocurrency market too.
Calculating Trading Fees
Different fee schedules and structures vary from exchange to exchange. Some exchanges utilize flat fees both for deposits and withdrawals while other exchanges apply percentage fees depending on the cryptocurrency and the total amount the user would like to deposit or withdraw.
Seasoned users who have more trading volume might pay lower fees because of the larger amounts that they trade with. If you’re a user that has a larger trading portfolio, you can use this and cut back on your losses when paying transaction fees.
A Few Words Before You Go…
Calculating your trading fees can be a bit overwhelming for both beginners and active traders, especially if those fees reach up to higher amounts of money. As we stated in the example at the beginning of the article, it’s very important to find the cryptocurrency exchange that suits your needs.
If you find a cheap exchange with low fees, don’t be fooled by the low dollar signs you see as many of those unregulated exchanges can scam you and cause you to lose your assets and even empty your bank accounts if you provide them with your credentials. It’s best if you stick with crypto exchanges with a solid reputation and large trading volumes.
We’ve written this article to explain the different types of trade fees (withdrawal, deposit, maker, taker fees) and their importance for you as a crypto investor. For additional information, you can browse the internet for technical crypto advice, or set up a demo account with some of the bigger crypto platforms to feel out the crypto market world before making investments with your own money.