Crypto exchange with 0 fees: a level playing field

Lykke Wallet is a blockchain-powered commission-free platform for cryptocurrency trading and forex, on which all exchange operations are executed without fee. At Lykke Wallet, users can trade with zero fee some 35+ cryptocurrencies including Bitcoin and 20+ forex pairs starting from as low as a 1 euro deposit. The 0 crypto fee policy is valid both for retail or corporate and API traders, who can take advantage of the zero taker and maker fees to execute their trading strategies. The very fact that Lykke Wallet is a free cryptocurrency trading platform, makes it different from the majority of other crypto exchanges with lowest fees. Indeed, we consider that the 0 trading fees are an important step in democratizing finance through blockchain, and here’s a number of reasons why.

Where does it all come from?

It is impossible to understand the principles that lie under the Lykke products without an understanding of the company’s broad vision and values. Lykke was founded in 2013 by Richard Olsen, a thought leader and serial entrepreneur who earlier had co-founded OANDA, and importantly, an academic researcher. Richard’s research has mainly addressed the inefficiencies of the traditional financial market: dependence on the working hours, cumbersome architecture, insane processing timing, human factor, unequal rights that the different categories of market players have, obsolete technology, abusive trading fees, and much more. The advent of blockchain technology brought solutions to some of the technological problems, but the essence of the financial system is, on the contrary, quite reluctant to a drastic change. Lykke was brought to the cryptocurrency market in 2015 as an attempt to create conditions for the emergence of a new, more democratic, financial system.

How do the 0 trading fees contribute to the democratization of financial markets?

First and foremost, the costs.

Lykke wants to serve its customer base and provide an optimal service; a key value driver for crypto holders is the ability to open and close positions at the best possible price. The costs charged impact the overall profitability of a trader whatever their trading skills are. In this respect, trading is no different than any other business. Profit is at the end of the day a function of the costs incurred. Picking the right entry points to enter the cryptocurrency market is important, but because we cannot be right all the time in picking the highs and lows, the spread charges plus transaction fees are the costs incurred and they need to be compensated by profits to just break even.

Selling at a high and buying at a low and correctly predicting any markets, not necessarily cryptocurrency, is difficult and depends on many factors from having access to good market commentaries to being well balanced as an investor or a trader. Like in any other business, there is the cost of doing business that determines profitability. If no cryptocurrency trading fees are charged and spreads are low, then this is one step closer to overall profitability. If the bid and ask spreads are high and on top there are trading fees to be paid, then even the best trading strategy will lose money. Low hanging fruit for any trader or investor to improve performance on their investments is to opt for a crypto exchange where spreads and fees taken together are low. Lykke Wallet offers exactly that with no trading fees and low spreads, which makes it one of the exchanges with lowest cryptocurrencies fees at all.

Second, level playing field. 

Professional traders achieve better performance than retail traders because they get better terms from exchanges thanks to volume discounts and because they can execute their strategies with algorithmic trading bots that are designed to execute transactions as maker and not as taker trades. This is a huge additional complexity that is out of reach for the ordinary investor. The zero cryptocurrency fee policy makes it easy for the normal trader - they do not have to opt for any complexity. They can just trade!

Making money during low volatility periods

Markets go through different volatility patterns - sometimes markets are widely gyrating and at other times they oscillate in a very narrow band. Even at exchanges with the lowest cryptocurrency fees there are still commissions to pay. If crypto trading fees are paid then they come on top of the spreads - and trading fees are static at an average of 0.2% or more. So when markets are going sideways and natural bid and ask spreads are compressed, then traders continue to pay the hefty average of 0.2% trading fee on top of the spread. This prevents a trader from taking full advantage of the narrow trading range and momentary low spreads due to the high crypto transaction fees. If no trading fees are charged, the trader can take full advantage of all the trading opportunities - no discrimination due to trading fees.

Simplicity:

Trading is inherently difficult and trading fees add complexity, the cryptocurrency trading is even more difficult due to the immaturity of the market. A trader has to consider the fees that will be charged on top. Especially when considering different trading scenarios, the trader has difficulty comparing apples with apples. If there are no trading fees, then this translates into higher profitability for the trader, so this is good news. Any transaction fees are costs that are charged on top of any ‘bid and ask spread’. To start with the most trivial, it is difficult for investors to memorize all parameters in the cost of their transactions to compute the profitability of their trades. If no fees are charged, computing profitability is much more straightforward, because the only input is the transaction price and there is no added complexity of ‘an average taker fee of 0.2%’ or more. It is so easy to be spooked and think that your trade is profitable, but in fact, it is not if you take into account the trading fees you've paid.

API traders and market makers take note! 

The absence of ‘taker fees’ opens new opportunities for high-frequency traders and market makers, they can turn into takers at any moment removing a lot of risk which in turn is to the benefit of everyone as it increases liquidity. An exchange with zero crypto trading fees is not enough for successful trading, spreads need also to be low for trading to be successful. Narrow spreads make life for the trader very easy, their trading decisions become very simple - will the price move above the buy level? Yes or no - that’s it! They don't have to deal with the debt burden of the cost of doing business that has to be paid for before making profit.

Risk management 

The fundamentals of being a professional trader are grounded on risk management. Professionals make money in financial markets, because they manage risk carefully. They use run-ups in prices to reduce exposure and THEY increase exposure incrementally when the prices drop. On the cryptocurrency market, trading fees are a cost that stand in the way of active risk management.

Crypto markets are famous for their volatility - this hides the fact that crypto markets go through many different market phases from extremely volatile to deadly calm. Successful trading requires ongoing risk management of increasing and reducing exposure as market conditions change. High fees are an added cost that stand in the way of managing exposure.

Practical example: 

A competitive and average quoted spread in the market is around 0.1%, the market average trading fee is around 0.2%, and considering that in this example we open and close a position (2 * 0.2%), we will end up with a total of 0.50% of incurred costs. However, at Lykke Wallet, the spread is around 0.15% and in much more cases lower than that, the total cost for opening and closing a position is exactly the spread of 0.15%.

Scenario: 

A trader makes one successful trade earning 10% on a position, then paying incurred costs of 0.5% and ending with a net profit of 9.5% after the fees are taken into consideration. If we remove the fees from the equation and moved to the Lykke model, they end up paying 0.15% and ending with a net profit of 9.85%. But the difference, in this case, is not big.

However, a more realistic scenario is that a trader makes several false starts - before they score the winning trade:

Consider a trader has to close out position 5 times because the timing was not good:

The market average exchange fee:

5 * 0.5% costs before making the winning trade of 10%  - total profit 7% (9.5% - 2.5% (5*0.5%)

Lykke Wallet exchange: 

5 * 0.15% = 0.75%  before making the winning trade of 10% - total profit 9.2%

Making 10% on one trade is a difficult task also in highly volatile markets. More typically profits are lower and trading costs have a proportionately bigger impact.

Trading costs do matter and the 0 trading fee is an important element in Lykke's unique selling proposition.

About Lykke

Lykke is a Swiss-based investment and financial product provider leveraging the power of the blockchain. Lykke runs a proprietary exchange — Lykke Wallet — where clients can buy, sell and store a large variety of tokenized assets, amongst them cryptocurrencies and national currencies. Sign up on our website and get access to trading cryptocurrency with zero fees now!

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