As cryptocurrency becomes more popular, more and more traders are looking to find ways to buy, sell and trade them online. Cryptocurrency exchanges are hence growing popular all over the world.
The exchanges are secure websites where you can buy, sell, or trade cryptocurrencies for other assets, like conventional fiat money or other cryptocurrencies.
While these virtual exchanges are digital in their offerings, actual people still manage them behind the scenes. Due to this, transaction fees are charged to users on these sites. However, many new crypto-enthusiasts cannot figure out how the fee structure works and are trapped amid technical terminology and jargon.
Here is everything you need to know about crypto trading fees and spreads.
Crypto Trading Fees vs. Crypto Spread
Crypto trading is another term for trading cryptocurrencies. All cryptocurrencies, by their nature, are volatile. This means they are subject to sharp price swings with little or no notice.
Crypto trading fees are the transaction costs you incur when you send money to an exchange or peer-to-peer trading platform to buy or sell cryptocurrencies. On the other hand, the Spread is the difference between any crypto pair’s asking and bid prices.
The Spread is where your profit comes from. The larger the difference, the bigger your profit margin. The volumes also help increase the profits of traders and the exchanges, making it even more attractive for you to start trading crypto.
A Crypto Spread is the difference between the current prices of two cryptocurrencies traded by the investors.
For example, it may be the difference between the price of Bitcoin and Etherium. Assume, for instance, that Bitcoin is trading on an exchange for USD 10 per BTC.
Meanwhile, Etherium is trading on the same exchange for USD 8 per ETH. The exchange then lists a Crypto Spread of -2, -$2. That means you would sell 1 BTC for USD 8 per ETH. The Spread squeezes its profits from collecting this difference.
There are two main types of Spread:
When trading in crypto, you can create new spreads for the cryptocurrencies you’re dealing in or their futures trades.
The other option is to trade the futures for the same cryptocurrency for different maturities. This form is also known as a calendar spread, where you make profits when the difference in price reduces.
Why Does Spread Matter?
Spread is essential for crypto trading because it lets you know the total cost of your trade when you place a particular order.
For example, assume that you are planning to buy 1 BTC for $5,000. With a spread of 6%, the price of the trade would be $5,300. Why is there a spread, then? It’s because markets don’t work perfectly. There is always a slight difference between the price at which people want to sell and buy the crypto.
Crypto Trading Fee
Crypto trading fees are the fees you pay to the exchange when you buy or sell cryptocurrencies. They are usually expressed in per cent or fractions of a per cent but can also be specified in other units. Since the crypto market is still relatively small, exchanges charge their crypto trading fees.
There are three types of crypto trading fees:
- Maker fee is paid when you add liquidity to the exchange by placing an order in the order book.
- The taker fee is paid when you remove liquidity from the exchange by placing an order against an order in the order book.
- Funding rate – It is applied if you use leverage to trade.
How Is The Trading Fee Fixed?
There is no fixed crypto trading fee for all exchanges since these platforms don’t charge a percentage or a flat transaction fee. But, some exchanges have taken the approach of lowering the transaction fee while setting a portion of the trade amount.
Crypto Trading Fee vs. Crypto Transaction Fee
Crypto trading fee is the small fee paid by the trader to the exchange. This amount is much lower than the fees charged on transactions performed using cryptocurrencies.
Cryptocurrency traders and users of crypto transactions usually pay a different fee based on the specific situations. For example, some exchanges generally have zero trading fees, but they are subject to transaction fees once the project gets started.
As is common with all forms of trading, the risks may be slightly higher in cryptocurrency trading, but final rewards are worth the investment you make and the risks you take. Some exchanges offer fixed fees or reduced rates for high-volume transactions. Hence, you can find trades that could save you money on trading costs before you invest.