In our daily cryptocurrency trading on various platforms or exchanges, we all notice or instead come across different types of cryptocurrency trading fees for each transaction we carry out on. This can be unpleasant, especially when one doesn't understand the significance of these charges.
One wouldn't understand why they would receive charges for almost every process, but this is the medium by which exchanges make enough money to compensate employees and earn a profit.
In this article, we would be helping you understand the Different Types of Cryptocurrency Trading Fees, at what point you incur them, why they can vary or fluctuate, and their purpose. We would discuss a couple of levies: exchange fees, withdrawal fees, deposit fees, network fees, totle fees, and interest fees.
Dive into this article to better understand these trading fees.
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In the world of cryptocurrency trading, there are about six main types of trading fees. These are;
This is a major means by which an exchange earns money, and this is done by placing fees for each transaction taken on the exchange; though this might seem little, it leads to high gains on the part of the exchange.
Two things to note when talking about exchange fees include the maker and the taker fees; these are also known as payment for order flow, which provides a form of liquidity in exchanges. The main aim of makers and takers is to vitalize the trading activity within an exchange firm. These might differ amongst various exchanges.
To understand what maker fees are, we have first to know what a maker is.
A maker is a trader or dealer who creates a new trade on an exchange in simple terms. Makers provide a market for other traders on the exchange, in turn, brings liquidity to the exchange order book up until another trader carries it on, and this is what is being referred to as "making a market."
Let's take an example to understand this concept better.
A trader makes an order that takes a while to get filled (this incurs a fee); while awaiting, it adds liquidity to the exchange. This trader can be referred to as a maker
Take note: a trade order is not immediately filled on an exchange.
This maker's description makes it a lot easier to understand what a maker fee is as the fees paid to these traders for creating liquidity. Maker fees are usually lower than taker fees, and this is used as a method to attract traders to an exchange.
Similarly, we have to understand what a taker is; a taker can only be referred to as a trader that matches the maker's trade.
Takers search for orders and fill out these orders, which are created by the maker. The fees are incurred when a trader fills out or is matched immediately with an order in the order books.
These fees usually differ, with taker's fees being mostly higher.
Let us create a scenario to understand better this type of trading fees. Say you have been trading for a while on a particular exchange. You wish to withdraw your funds either to your bank account or to a different wallet, the exchange with which you are currently trading will charge you a fee for this action. This is referred to as a withdrawal fee.
Exchanges can either have a fixed withdrawal fee (depending on the trading coin) or a percentage based withdrawal fee.
For a fixed withdrawal fee, we would be considering remitano as an example; this exchange has a fixed withdrawal fee of 0.0002 per BTC withdrawal, and this falls low when compared to the average BTC global withdrawal fee of 0.0008 per BTC withdrawal (though in recent times, it has been 0.0005).
For a percentage-based withdrawal fee, an exchange chooses a percentage (for example, 0.50%), and this would be the amount paid as a fee.
This can be tricky because it is more beneficial when withdrawing small amounts than removing massive amounts. For example, withdrawing 0.01BTC with a 0.50% fee means you pay only 0.00005BTC as the low withdrawal fee.
Compare this to taking 10BTC at 0.50%; you would be paying 0.05BTC as the withdrawal fee, which is considered high. Therefore this fee should be considered when choosing an exchange to make use of.
Most exchanges don't usually charge such fees when you deposit cryptocurrencies, and this serves as a sort of "thanks" for choosing to use them for trading. Deposit fees can be incurred when you deposit fiat currencies.
Deposit fees are made because the exchanges must pay either the banks or the credit card companies a few. By this, we should tell that deposit fees differ depending on the method used (bank transfer, credit, or debit cards).
When depositing by the bank, the deposit fee is usually lesser than that incurred when depositing via credit card.
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This can be defined as any currency that is recognized as money. To acknowledge a currency as a fiat, it has to have some government decree.
Can we then consider Bitcoin as a fiat currency? Everyone has a different answer to this, and in some aspects, this might be true. Check out this Wiki post to see more on the topic of whether Bitcoin is fiat or not.
Part of fiat trades makes up the exchange fees in most cases. Suppose you have a fiat wallet and deposit or withdraw money from it. In that case, the exchange that provides this wallet charges a certain amount for your transaction---for example, the Remitano fiat wallet.
This is the third type of fees for trading cryptocurrency, and it is called Gas, used to fuel or validate transactions on the blockchain.
This charge is not set by the exchanges but serves as a market rate for validating cryptocurrency trading transactions. These fees serve as compensation to the miner for the computing power used to verify your transaction's block.
By this description, you can tell that the miners play a significant role in determining the network charges or Gas. This is evident by the miner's ability to turn down a transaction if the gas fee doesn't meet his/her requirement.
Exchanges sometimes calculate the amount of Gas needed to fuel a transaction and then charge you for it. This fee then goes to the miner, who then confirms your transaction.
Network fees vary, and this is according to the amount of load on the network (all boils back to the demand on a cryptocurrency); if the network is crowded, the network fees would be higher compared to when the network is not crowded. Let's take an example.
The network fee for Ethereum had an average of $5 around July. But these trading fees for coins reduced to about $0.13 in November. This corresponds mainly to the congestion of the network.
These fees for trading cryptocurrency allow individuals to pay according to the urgency they require to handle. This means that a less critical cryptocurrency trading would cost less than a transaction that would need to be addressed instantly. This type of trading fee is still new, but users must pay the DEX fee and the network fee.
This stands for decentralized exchange, and this provides a secure and easy means of trading.
Interest fees in cryptocurrency trading refer to an interest in the amount of coins initially borrowed. It is possible to borrow cryptocurrency. This is referred to as cryptocurrency lending. This is often seen when investors lend money to borrowers and expect to profit through interest paid.
This article was written with the sole purpose of educating whoever might be reading it about the various cryptocurrency trading fees.
Every cryptocurrency has its trading fees for that coin; these fees include; the exchange fee, network fee, withdrawal fee, deposit fee, totle fee, and interest fee. To learn more about trading fees on Remitano, read our post on trading/deposit/withdrawal fees.
