Fees can be the death of a profitable trading strategy, and unfortunately, trading crypto can be an exercise in encountering hidden charges that eat into hard-won gains. However, using tactics such as seeking out fee discounts offered by exchanges such as MultiBank.io and optimizing trading activities for fees can help carve out a wider profit margin.
Trading fees, often listed at a fraction of a percent, may not look like much to those who only trade infrequently. Indeed, if you only make a trade when you need to rebalance a portfolio or for a monthly dollar-cost-averaged investment, you aren’t likely to pay much attention to the fees involved.
However, the more frequent your trading activity, the more you will care about fees since the likelihood is that fees are eating into your trading profits. Moreover, depending on the venue and type of transaction, crypto trading can involve many different types of costs that may not always be apparent upfront.
Types of Fees in Crypto Trading
Order book exchanges typically operate a maker-and-taker fee system. Maker fees are applied to limit trades, which add liquidity to the order book since they don’t need to be filled immediately. Taker fees apply to market trades, which are filled immediately. Many exchanges charge a lower rate of maker fees to incentivize traders to place limit orders.
Trading crypto perpetual futures also involves paying a funding fee. Since perpetual futures contracts have no expiration date, the funding rate is a mechanism that helps to anchor the futures price to the spot markets through periodic rebalancing. This means that while one side of a trade (e.g., the long side) pays the fee, the other (short) benefits.
Centralized exchanges also levy withdrawal and deposit fees for moving cryptocurrencies between wallets, which can often vary significantly between companies.
In DeFi, DEX traders benefit from a more straightforward fee structure since DEXs tend to levy a flat percentage per trade. In Uniswap V3, this can vary from 0.01% to 1%. However, the underlying blockchain transaction charges may vary depending on which platform is used.
Bearing in mind the various types of fees involved, there are several ways that traders can reduce their fee burden.
1. Seek out exchanges with favorable fee structures
While the basic maker and taker fee rates apply to everyday users trading low volume, many exchanges operate tiered systems or fee-based incentives for traders who trade in high amounts or are active traders of high volume. Now, established TradFi institutions are taking a leaf from the crypto-native book. MultiBank.io, one of the largest financial derivatives institutions, offers an attractive sliding tiered fee system where traders can achieve discounts of up to 80% of the standard trading fees by meeting a minimum 30-day trading volume and holding the bank’s native MBG token.
MultiBank Group has established a reputation as the world’s most regulated derivatives broker, overseen by 14 regulators on five continents. The company is carrying this reputation forward into its digital asset offering, with pre-approval from the Dubai Virtual Asset Regulatory Authority (VARA). With a global presence and over 90 trading pairs, MultiBank.io is well-placed to offer deep liquidity and tight spreads to crypto traders.
2. Optimize your trading strategy for fees
Exchanges typically charge less for maker orders than for taker orders, so developing a trading strategy that makes use of limit orders rather than market orders can help to reduce the overall fee burden.
Similarly, trading derivatives such as futures can often look like it will incur lower fees than the spot markets. However, trading instruments such as perpetuals can result in additional fees due to the funding rate. During times of high volatility, the spot price can vary significantly from the futures price, resulting in high funding fees.
Using leverage to trade futures can also magnify the fees involved, which can compound losses if the market moves against a leveraged trade since the fees are still payable. Leverage can also incur additional fees since it represents a risk on the part of the exchange.
3. Look for the low-cost infrastructure
Many major DeFi protocols now operate on more than one blockchain platform, meaning that DeFi traders have more opportunities to optimize their trading strategy for fees as well. Chains including Polygon, Solana, Avalanche, and Arbitrum now hold substantial liquidity from dApps such as Curve Finance, Uniswap, and Aave and offer far lower transaction fees than Ethereum. It’s possible to trade on most DEXs with flat fees of around 0.3-0.5%, depending on the trade.
Some CEXs also link withdrawal fees to the underlying network costs, so using low-cost platforms wherever possible is a sensible strategy for anyone seeking to reduce fees.
Trading fees are an inevitability that can’t be avoided entirely. However, by understanding where fees are most likely to eat into profitability, traders can seek out the best trading venues and strategies that allow them to reduce their costs and maximize gains.
