Fees can have a detrimental impact on a profitable trading strategy, and unfortunately, trading cryptocurrency often involves encountering hidden charges that diminish hard-earned gains. However, there are tactics that can be employed to mitigate these fees and increase the profit margin, such as seeking out fee discounts offered by exchanges like MultiBank.io and optimizing trading activities accordingly.
While trading fees, typically listed as a small percentage, may seem insignificant to those who trade infrequently, they become increasingly important for frequent traders as they eat into trading profits. Furthermore, the various types of costs associated with crypto trading may not always be apparent upfront, depending on the venue and type of transaction.
Order book exchanges typically operate on a maker-and-taker fee system. Maker fees are applied to limit trades, which add liquidity to the order book and do not require immediate filling. On the other hand, taker fees apply to market trades, which are filled immediately. Many exchanges incentivize traders to place limit orders by charging lower maker fees.
Trading crypto perpetual futures also involves paying a funding fee, as these contracts have no expiration date. The funding rate helps align the futures price with the spot markets through periodic rebalancing. Thus, while one side of the trade pays the fee, the other side benefits.
Withdrawal and deposit fees for moving cryptocurrencies between wallets are also charged by centralized exchanges, and these fees can vary significantly between companies.
In DeFi, decentralized exchange (DEX) traders benefit from a more straightforward fee structure, with DEXs typically charging a flat percentage per trade. For example, in Uniswap V3, this fee can range from 0.01% to 1%. However, the underlying blockchain transaction charges may vary depending on the platform used.
Considering the various types of fees involved, there are several ways traders can reduce their fee burden:
1. Seek out exchanges with favorable fee structures: Many exchanges offer tiered systems or fee-based incentives for high-volume traders. MultiBank.io, a reputable financial derivatives institution, provides a sliding tiered fee system where traders can achieve discounts of up to 80% of standard trading fees by meeting certain criteria.
2. Optimize trading strategy for fees: Developing a trading strategy that utilizes limit orders instead of market orders can help reduce overall fee burden, as exchanges typically charge less for maker orders than for taker orders. Additionally, traders should be aware of the potential additional fees associated with trading derivatives like perpetuals, such as funding fees during times of high volatility.
3. Look for low-cost infrastructure: DeFi traders now have the opportunity to optimize their trading strategy for fees by utilizing multiple blockchain platforms. Chains like Polygon, Solana, Avalanche, and Arbitrum offer lower transaction fees compared to Ethereum. Similarly, some centralized exchanges link withdrawal fees to the underlying network costs, making it advisable to use low-cost platforms whenever possible.
While trading fees cannot be entirely avoided, understanding where fees are likely to impact profitability allows traders to seek out the best trading venues and strategies to minimize costs and maximize gains.