Cryptocurrency Fees Explained
Understanding cryptocurrency trading fees may be a challenge even for people who are not newbies on the crypto market. In this article, we will look into different types of crypto fees and explain why zero trading fees are a great advantage for all kinds of traders. To understand crypto fees, let's walk along the whole process of starting cryptocurrency trading. The first step is to get registered at a crypto exchange, which is totally free without exceptions. The second step is to get KYC-approved and deposit your first funds, this is where the first fees may be charged.
In most cases, cryptocurrency exchanges do not charge you anything for receiving your incoming transfer in crypto. Some cryptocurrency exchanges allow you to deposit only crypto and others also have a fiat gateway.
A fiat gateway, or a fiat ramp-on, is a system of payment that allows you to deposit fiat (central bank currencies) such as Euro or USD. There are various options you can choose from: depositing by SEPA or SWIFT, depositing through a payment gateway such as PayPal or Wise, or depositing by credit card. Crypto exchanges usually don’t charge anything for accepting your bank wire deposit.
At Lykke, we not only charge zero fees for receiving your bank deposit, but we also cover your bank's commissions unless these are correspondent bank’s fees that we do not cover. This is a temporary offer that is valid at the moment of writing, but may not be valid anymore when you will be reading the article. These are truly unique conditions on the crypto market.
At Lykke, we currently don't offer other fiat deposit options, but other exchanges might have deposits by PayPal, credit card or other payment providers. Such options are typically offered by special payment providers and therefore, normally have quite high fees. However, it may be worth it if you need to fund your account instantly to take advantage of a trading opportunity.
It is commonly known that a crypto exchange, offering a marketplace service to its clients, needs to charge some trading fees in order to monetize the service. A trading fee is the commission that an exchange charges each time a trader buys or sells cryptocurrency. This means that if you want to buy Bitcoin at a low price, then wait and sell it at a higher price, you would pay the fee two times: when you buy and when you sell. This is super simple, you would say, however, understanding cryptocurrency trading fees may result more complicated than it seems.
Each exchange has its own policy, make sure you study it carefully and understand before you make a trade and get a surprise. In most cases, crypto trading fees vary a lot depending on several factors. Primarily, these factors are (1) your role in a transaction and (2) the aggregated trading volume that you eventually generate. When we talk about the role in a transaction, we have to distinguish between people who provide liquidity and people who consume it. They are called “makers” and “takers”.
These terms refer to the trading opportunities that crypto traders create or take advantage of on a crypto exchange. All players on the market are interested in making money, exchange is what creates opportunities for making money. However, if an asset is not interesting to many buyers, it is more complicated to exchange it: people just don’t buy it, this means that it lacks liquidity. Therefore, everyone is interested in maintaining the liquidity of assets: the exchange and the traders.
To stimulate it, exchanges offer lower fees to those traders who create liquidity. They are called “makers” because they make markets. They place limit orders and populate the order book, the denser the order book the more liquidity an asset has. Therefore, an exchange normally favors the maker behavior and charges lower fees to makers than to takers. Takers are those players who consume liquidity by closing the open limit orders. They remove orders from the order book and therefore, exchanges charge them higher fees.
Contrary to the common misconception, there are exchanges that do not charge any trading fees, which means that both taker and maker fees are zero. Many players on the market simply do not conceive the idea that an exchange business model may be less simplistic than just charging trading fees, and therefore, automatically assume that all cryptocurrency trading platforms charge fees. However, this is far from the truth.
Many DeFi platforms operate on a commission-independent model, however, in case of a DeFi, a trader faces the risk of not being able to receive any technical or legal support when needed. The conditions are better, but the risk appetite should be higher to operate on such platforms. The solution to this problem is Lykke exchange, which is a centralized and compliant exchange that charges zero trading fees.
Our business model does not depend on commissions, moreover, we smartly optimize the processes and KPIs in order to maintain solid liquidity and guarantee low buy-sell spreads. This model is possible thanks to financial engineering expertise and is based on research in high-frequency finance. This may sound complicated, but all you need to know is that no matter how many trades you execute, even if you use a high-frequency crypto trading bot, you will pay zero fees for your transactions on the exchange.
Zero trading fees is an important advantage for all kinds of traders, but it is especially favorable for high-frequency traders. This is just simple math: on a mainstream exchange, the more you trade the more you pay in trading commissions because you pay a fee for each trade. Even if you lose money when you make a mistake when trading, you still pay a fee. In high-frequency trading, a bot may easily perform hundreds of trades per day, so just imagine the amount of money you would pay as trading fees.
Lykke eliminates this inefficiency and gives crypto API traders the opportunity to open and close positions without being concerned about paying fees and calculating the total profit after the fees are paid. If you still do not have a trading bot, we recommend you benefit from our promotion for Margin.de bots. If you purchase a starter plan for Lykke exchange and introduce the code “Lykke” you will receive a 30% discount.
Cryptocurrency transaction fees may be the most difficult concept to understand. First we have to keep in mind terminological questions, such as what digital currencies are cryptocurrencies and what are not. Giving a definition is not the purpose of this article, however, it’s worth mentioning that a cryptocurrency is decentralized and reliant on blockchain technology. If a currency is emitted by a centralized body, it’s not a cryptocurrency, such as CBDC, but just a digital currency.
If the code is decentralized, there should be an economic model behind it to incentivize developers to mine the blocks. Therefore, many cryptocurrencies have their inherent fees that have to be paid independently of the cryptocurrency exchange to fuel a transaction on the given blockchain. The typical example here is GAS, a utility token of the Ethereum network that is used to pay for ether transactions. The more GAS you add the faster your transaction will be added to a block in the blockchain. This is the principle common to many other blockchains, just get informed about their specific conditions before you start trading.
“Hidden fees” really sounds like something not nice and so it is. Probably, the most strident example are the inactivity fees whose existence users normally discover either because they have read all 10+ pages of the exchange’s Terms and Conditions or because they have noticed in their account that they had been charged a fee.
At Lykke, we do not have any inactivity fees, the only fees you will pay are the withdrawal fees if you withdraw cryptocurrency and a recovery fee if you’ve sent your funds to a wrong address.
Blockchain technology is a new concept with some special characteristics: it’s immutable, it’s public and hence transparent, and it’s sometimes little user friendly when you have to operate with cryptography with regards to the 12-word backup seed or deposit addresses. Add to this hard forks, token migrations to a different blockchain, and changes in exchanges’ listing policies. For this reason, it’s not uncommon for people to send their funds to a wrong address or to keep on an exchange a delisted or migrated asset. In such cases, when technology permits, the exchange can take action to recover the lost funds, but there will always be a recovery fee to compensate for the developer resources needed to recover your funds. Bottom line: please do check the notifications of your crypto apps not to miss important updates.
When you want to withdraw your funds from a cryptocurrency exchange, you generally have two options: withdraw crypto to another platform or withdraw fiat to your bank account. In both cases, crypto trading platforms charge a fee.
In the case of Lykke exchange, we charge cryptocurrency withdrawal fees, but we cover your fiat withdrawal fees if you send your funds directly to your bank account. Just like in the case of deposit fees, this is a temporary special offer that may not be valid anymore at the time of reading.
Tracing the bottom line, you have surely noticed that there are lots of fee types that you have to take into account when you start crypto trading. It may be complicated if you use several platforms whose taker and maker fees depend on the volume and don’t have the same pricing. If you're looking for simplicity and cost-effectiveness, Lykke is a smart choice: forget about taker and maker fees and just trade for free!
Lykke is a no fee crypto exchange registered in the UK and operating on the market since 2015. It was founded by Richard Olsen, formerly founder of OANDA. In our view, blockchain technology allows market players to design products and services that can truly democratize finance by eliminating the middleman, fueling exchange and eliminating inefficiencies such as trading fees. Apart from our beneficial fee policy, we offer robust architecture, 24/7 human support and a safe trading environment in compliance with KYC and AML regulations.
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Cryptocurrency Fees Explained
Understanding cryptocurrency trading fees may be a challenge even for people who are not newbies on the crypto market.