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What Fees Should I Look to Avoid When Buying Crypto?

By Evan Jones11/23/2022

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Confused by the array of fees mentioned on crypto platforms? There are many types of fees which you will encounter when buying, selling, and trading cryptocurrencies. Some of these fees are unavoidable, while others are simply fees you’re paying for convenience. Below we’ll outline the most common types of fees you’ll encounter, whether they’re necessary, how much they should be, and which ones you can avoid.

Types of Fees

Unavoidable Fees in Crypto

Below we’ll note and describe all of the ostensibly unavoidable fees you’ll encounter in crypto. Some of these may be avoidable depending on the platform you’re using, but in general they’re commonplace.

Transaction (Network) Fees

Transaction fees refers to fees you’re paying to send a transaction on the blockchain. Regardless of whether you’re using the Bitcoin network, Ethereum, Cardano, or another blockchain network, you’ll have to pay some sort of transaction fee to send your funds to a recipient (this can be another person, a trading platform, or even just another crypto wallet you own). 

Transaction fees vary depending on the blockchain, its congestion (number of users at the time), and how much you are sending. Generally speaking, fees on chains other than Bitcoin and Ethereum should certainly be under $1 total, regardless of transaction size. For example, sending 1000 ADA on Cardano currently costs 0.18 ADA (about 8 cents). Solana (SOL) is generally less than $.01.

Meanwhile during times of extreme congestion Ethereum has hit upwards of $71 (!) per transaction. That was highly unusual, however, and ETH usually settles for around $.50-$3 per transaction. Both BTC and Ethereum use Layer-2s to help reduce the cost of transactions.

Maker and Taker Fees

Maker and taker fees exist on any cryptocurrency exchange platform, though some platforms charge you a spread instead (more on this below). They’re charged when you make a trade. Which you’ll be charged depends on the factors outlined below.

Maker fees are charged to users that create trades for which there is no current buyer. These types of traders provide liquidity to the exchange by placing an order to be matched in the future. Maker fees need to be paid when orders are filled. When makers place orders, those orders do not fill immediately. They go on the order book, therefore adding liquidity to the exchange.

In contrast to maker fees, taker fees apply to orders that remove liquidity from the order book. This can be in the form of a market order (buy or sell at best available price on book) or a limit order that is filled immediately (placing a limit order for a price that already exists in the book). In either of these cases, the taker fee percentage is charged.

These fees vary quite a bit but can start as low as .01% and go up to 1% in certain cases.

Spread Fees

A spread fee is similar to a maker or taker fee except that it is often marketed as being not a fee. It’s generally referred to as a bid-ask spread. It’s the difference between the highest price that a buyer will pay for an asset and the lowest price that a seller is willing to accept. There are quite a few exchanges and platforms that charge spreads rather than maker or taker fees, and they generally say they have no trading fees.

For example let’s say Bitcoin is trading at $10,000. You buy it on Exchange X for $10,200. That $200 represents a spread of 2%.

While it’s true that these platforms technically have no trading fees, if they’re charging a spread you’re still paying something extra for the transaction. The mechanics of a bid-ask spread often mean you’re actually paying somewhere between 1-2% in fees, but it’s often built into the price you see so you’re not fully aware of that extra percentage in cost.

You’re better off with a platform that charges maker and taker fees than one that charges a spread, but neither type of fee is avoidable.

Funding Fees

Funding fees (sometimes called rates) are payments made to traders that engage in futures trading (derivatives, options, etc.). The funding fee is based on price differences between perpetual contract markets and spot markets. When the price for contract trading is higher than the price for spot trading, the longs pay the shorts and vice versa. 

Funding fees are in place to help keep contract trading prices close to the prices for spot trading. The fee is to incentivize the other side to open more positions, in theory bringing the price of futures contracts more in line with the spot price. Anyone participating in futures trading will have to pay funding fees, but the actual cost is extremely variable depending on the gap between the markets.

Crypto Fees You Should Avoid

Now that we’ve gotten the unavoidable fees out of the way, we can discuss some fees that you can fairly easily avoid. A lot of these fees are for the convenience and immediacy they offer, so you’ll need to assess whether the trade off for avoiding them is worthwhile to your particular situation.

Instant Buy or Sell Fees

One of the easiest fees to avoid in crypto is the fee for placing an instant buy/sell. These options, while convenient, often incur fees that are at a minimum, exponentially higher than maker and taker fees. At the maximum, using an instant buy option to buy a digital asset with a credit card will incur a host of fees including cash advance fees, and often a charge of at least 3% by the payment processor. Sometimes they’ll simply have a flat fee of $1-$5 for smaller crypto purchases.

In contrast, making a maker or taker trade on an exchange such as Binance only incurs a 0.1% fee. Even a taker trade at current market price will incur a lower fee than using the instant sell options. 

To clarify, the instant buy and sell options and their fees are generally those found when you click the big “Buy Crypto” or “Sell Crypto” option right on an exchange homepage (example in image below).

On Kucoin an Instant Buy is referred to as a Fast Trade

Deposit Fees

Deposit fees are fees that users pay when they transfer cryptocurrencies or fiat to a cryptocurrency exchange or platform. The majority of crypto exchanges charge users nothing for deposits, so if you’re in fact using a platform that does, you should look for an alternative. The platform should be trying to incentivize new deposits by having zero fees.

Platforms such as Binance, Coinbase, and KuCoin charge users no deposit fees on crypto with fees on fiat for only some deposit methods.

Withdrawal Fees

Withdrawal fees are fees that users pay when they want to transfer cryptocurrencies or fiat from one crypto platform to an external source. External sources could be a PayPal account, bank account, another exchange, or an external crypto wallet. Now, many exchanges have a set number of free withdrawals per month, but what you want to find at a minimum is one that only charges the network fee for a withdrawal. This means you’re not paying anything extra than you would be to send it to yourself from your own account.

You will have to pay network fees whenever you transfer crypto from an external wallet to any other platform, as they’re unavoidable. It’s certainly possible to find platforms that charge little to nothing for you to withdraw assets, but most exchanges will charge you a little more than the network fee in order to generate extra profits.

You should certainly avoid any platform that charges you percentages of your withdrawal, or a flat rate that’s over $5.

Article tags

Crypto Help
Exchanges
Fees
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

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