While most stock brokers are regulated in India, cryptocurrency exchanges are not. Hence, their fees might not always be transparent or easy to understand. We’ve therefore compiled a comprehensive list of exchange fees so you know what to expect.
What are exchange fees in Cryptocurrency?
Exchange fees refer to all the charges you’re liable to pay your crypto exchange for holding, trading, and transferring your coins. Exchanges are notorious for charging customers exorbitant prices in return for providing tools to invest and trade in crypto. Understanding what you’re paying the exchange for every time you make a transaction is important. Not only will it help keep your bottom line in check, but it will also help you switch exchanges if you need to.
Types of crypto exchange fees
Crypto exchanges charge fees to sustain themselves and rake in some profit. There are various kinds of fees associated with an exchange. Let’s break them down for you.
1. Maker and taker fees
Makers and Takers refer to two different types of traders. Makers are those that add liquidity to the market by placing limit orders. Conversely, takers take away liquidity through spot trading. Takers, essentially, wait for prices to fall within a desirable range so they can buy or sell. The fees that exchanges charge them are called maker and taker fees, respectively.
Because exchanges are incentivized to attract more orders to their platforms, they tend to offer a lower maker fee than a taker fee.
Remember that in addition to this, you will have to pay spread charges. Every exchange matches the highest bid to the lowest ask for a particular coin. The difference between these prices is called the spread. Pairs that are traded more frequently usually see lower spreads.
2. Deposit and withdrawal fees
As the name suggests, deposit and withdrawal fees are charged for depositing or withdrawing crypto or fiat currency from the exchange. Withdrawal fees are often steeper than deposit fees. The amount usually depends on how you move the money; UPI, net banking, or bank transfer all come with different charges.
Indian exchanges usually do not accept debit and credit cards to avoid fraudulent transactions. Netbanking is usually the cheapest option, followed by UPI.
3. Staking fees
Exchanges that offer you the option of staking may charge you a fee for it. Staking means temporarily locking up crypto with an exchange to help the PoS blockchain associated with that crypto function. In return, you earn a fixed Annual Percentage Yield (APY).
The staking fee involved varies. Coinbase, for instance, charges between 25% and 35% of profit as commission for its staking service.
4. Joining fees
Most major cryptocurrency exchanges in India do not levy a joining fee. However, if you intend to use an exchange abroad, this may be a fee to factor in. And to maintain an inactive account, you will need to pay a small maintenance fee.
In addition, some exchanges charge additional fees for specific types of trades, like a margin fee. So you may want to look into all charges closely before you sign up for or use a service.
Do CEXs charge differently from DEXs?
To understand how crypto-exchange fees differ, we need to understand the different types of exchanges. There are two types of exchanges: Centralized Exchanges (CEXs) and Decentralized Exchanges (DEXs). Both types of trading platforms help buy and sell cryptos. But a centralized entity runs a CEX, and a DEX operates permissionless via smart contracts. Although the fee depends on the assets traded, broadly, one can say that CEXs and DEXs charges vary significantly.
Since users don’t need to interact with the blockchain in this type of exchange, there are no gas fees. CEX charges are thus meant purely for profit rather than to cover costs. Therefore, they can offer lower transaction fees compared to DEXs.
Because DEXs, on the other hand, allow users to trade without intermediaries, they impose a gas fee. The fee depends on the blockchain they use.
Tips for locating the most competitive exchange fees
Finding the best exchange fees and determining if an exchange’s fee is reasonable requires some research. First, make sure you’ve read and understood this article well. Knowing what you’re being charged for ensures you aren’t overcharged. Next, choose and compare exchange fees by focusing on the types of fees listed above. While doing this, look up the fees for specific cryptos or trading pairs.
Now calculate your trading volume and compare fees on different exchanges. Some platforms offer lower fees for higher trading volumes, so try to take advantage of such offers.
Check for any hidden fees the exchange may charge for services like deposits or withdrawals.
How to reduce crypto fees
People trade in crypto to grow their wealth, so paying exorbitant sums in trading fees doesn’t feel right. Here are some ways to minimize your crypto trading costs:
- Some exchanges offer a maker/taker fee model. As makers pay lower fees than takers, it makes sense to aim for limit orders whenever possible.
- Avoid withdrawal fees by buying and trading crypto with coins or other assets.
Consider transaction amounts, as fees are usually a percentage of the amount traded.
- Take advantage of promotions and sign-up offers to offset the cost of fees.
- Check for any hidden fees.
- Choose the right payment method. Doing so can save you a lot of money in the long term, especially if you invest via a Systematic Investment Plan (SIP). Make sure it’s safe and secure. If not in trading fees, save in other ways.
- Use multiple exchanges to reduce your overall fees. Just like online shoppers check several shopping platforms to get the best deal, by using different exchanges, crypto traders can take advantage of the lower fees or special promotions each offers. However, the sum you go away with depends on the trading pair and the amount.
That said, traders should remember that using multiple exchanges also comes with additional costs. These costs include network fees for transferring cryptos or tracking trades. It is important to take this on board before using this method.
Paying exchange fees
Customers usually pay exchange fees every time they make a transaction. However, some fees, like a maintenance fee, may be charged annually or quarterly.
Most established platforms have account statements with a detailed breakdown of declared charges. Some fees, like spread charges, are hidden and will not be mentioned in the statement. They are paid every time the customer makes a transaction. It;s important to look out for them.
Are there any hidden fees I should be aware of?
Yes, there can be hidden fees in crypto trading. Some exchanges apply additional charges for advanced trading features, such as margin, futures, or options trading.
Are lower fees always better?
While lower fees are great, there are other important factors that you must consider, too. It’s equally important, for instance, to consider security, liquidity, reputation, and customer support. Besides, some exchanges have other hidden charges.
Can exchange fees change over time?
As we all know, the crypto market is extremely volatile. Due to this volatility, exchange fees can also change over time. Many crypto exchanges adjust their fees periodically in response to market conditions, changes in demand, or operating costs.
How are crypto exchange fees calculated?
Crypto exchange fees are typically calculated based on a percentage of the transaction value or a fixed fee per transaction. The specific fee structure varies across exchanges and can depend on factors like trading volume, type of order, and membership status.
Why are crypto fees so high?
Crypto fees can be high due to several factors. Firstly, the decentralized nature of cryptocurrencies requires complex infrastructure and security measures, which contribute to operating costs. Additionally, high demand and limited supply can lead to increased fees.
How do I avoid crypto fees?
To avoid crypto fees, seek exchanges with lower fees, use peer-to-peer platforms, consider decentralized exchanges, utilize fee-free promotions, trade less frequently, and explore alternative payment methods.