Paying a trading or brokerage fee is unavoidable when you buy and sell cryptocurrency through a brokerage, exchange, or over-the-counter service (OTC desk). But have you ever wondered why exchanges, brokers, and OTC services charge a fee, how trading fees affect your net return, or, if you are new to trading, what a trading fee is?
To give traders a better understanding of trading fees and to give them the knowledge they need to make optimal decisions when it comes to picking a crypto brokerage, exchange, or over-the-counter service, let’s took a closer look at trading fees, why they are charged, how trading fees affect a trader’s net return, and how to reduce trading expenses.
What Are Trading Fees?
A trading fee, or brokerage fee, is the amount of money charged by an exchange, broker, or OTC desk for the services that they provide you with – for example, executing your trades and providing you with a platform where your trades can be completed.
On nearly all exchanges, a fee, which is usually a percentage of the total transaction amount, a flat rate, or a combination of the two, is charged every time you buy or a sell an asset.
Why Are Trading Fees Charged?
If it weren’t for an exchange or a broker, traders would find it difficult to buy or sell cryptocurrency. Even if an individual is willing to sell their crypto and an individual is looking to buy crypto, without a marketplace like an exchange, broker, or OTC desk, the buyer and seller may never be able to connect and execute the trade. Therefore, exchanges and brokers serve as the middlemen who facilitate these transactions between buyers and sellers. However, they charge a fee for the service that they provide.
In other words, trading/broker fees are service charges that go to the exchange or brokerage because they make it possible for traders to buy and sell cryptocurrency with ease. But, unfortunately, these same fees that allow you to easily buy and sell cryptocurrency also take away from your total trading profits.
How Do Trading Fees Affect Your Net Return?
Trading fees take away from your net return, the amount of money you receive after all your costs have been paid. Each time you buy cryptocurrency, a fee is taken from the initial amount of money you are looking to invest. And each time you sell cryptocurrency, a fee is taken out of the revenue you will be receiving from the trade. As a result, your net returns are decreased by the trading fee that is charged. Paying a trading fee is inevitable when you are buying and selling crypto through a brokerage, exchange, or OTC desk; however, there are ways to be proactive when it comes to reducing the trading fees that you have to pay.
How Can You Reduce Your Trading Fees?
You can shop around to see which cryptocurrency exchanges have the lowest trading fees to reduce your trading fee expenses and increase the net return you receive on your trades.
For instance, cryptocurrency exchange Bittrex charges 0.25% on every trade, but cryptocurrency exchange Binance only charges 0.1% on the total amount per trade. These platforms are often better suited for highly experienced traders, so, oftentimes, easy-to-use brokerage platforms are the preferred method of trading.
When it comes to cryptocurrency brokerages, Coinbase charges 1.49% per trade as well as a flat fee that ranges from $.99 to $2.99 (depending on how much you are transacting). On the other hand, cryptocurrency broker Amplify only charges 1% per trade. In addition, when you pay your trading fees with the token native to their platform – the AMPX token – you receive 50% off on your trading fees. This means that the 1% fee that their brokerage charges will be reduced to only .50% per trade. An offering like this can save you significant amounts of money, especially if you buy and sell cryptocurrency frequently or in large amounts.
And when it comes to OTC desks, the OTC desk Local Bitcoins charges users who sell their cryptocurrency on the platform a 1% fee on each completed transaction. Buyers on the Local Bitcoins platform do not explicitly pay a fee. However, sellers charge a premium that factors in the 1% fee they must pay; this premium implicitly includes the 1% fee. Compare that to the OTC desk, Changelly, which charges their buyers a fixed fee of 0.5%.
As you can see, the trading fees, brokerage fees, and fees charged by OTC desks vary from business to business. That being said, it is best to shop around and leverage the internal mechanisms that some of these services offer so you can receive the lowest trading fees available.
To optimize your net return from trading, you must be aware of trading fees. Make sure you shop around for a cryptocurrency broker, exchange, or OTC desk that works best for you and has relatively low fees. If you trade cryptocurrency frequently or in large amounts, you will find it advantageous to use one of the platforms with an internal token. Otherwise, you will be paying trading fees frequently. Depending on how often you trade and the size of your trades, this can add up to a significant amount of money, or can be rather expensive.Opinions expressed here are the opinions of the author. Influencive does not endorse or review brands mentioned; does not and can not investigate relationships with brands, products, and people mentioned and is up to the author to disclose. VIP Contributors and Contributors, amongst other accounts and articles, are professional fee-based.