Shopping? Trading? Minimize Your Bitcoin Transaction Fees
Cryptocurrency is always in the headlines for various reasons, including its acceptance by major corporations like Tesla. Despite facing a recent hit in prices, cryptos such as Bitcoin continue to rise in fame, especially in trade.
Trading in cryptocurrency is a highly lucrative opportunity if you know the nooks and crannies of eliminating costs. Among the many factors that traders have to deal with are the exchange fees. Most crypto transactions are expensive to execute compared to conventional payment processing fees.
For instance, transacting in Bitcoin will cost you about $1.00 for every executed transaction, which in our opinion is very high for casual expenditures on small services and goods.
This article will discuss how these exchange fees are determined and explain how you can avoid them.
What are Crypto Exchange Fees?
Trading in cryptocurrency is not available for free; you'll have to pay what is known as cryptocurrency exchange fees.
A crypto exchange fee is a charge added to the cost of buying and selling cryptocurrency on the exchange platforms. The fees can either be Maker and Taker fees.
In some instances, cryptocurrency traders can incur both maker and taker fees, especially if a limit order already exists in the order book.
The term Maker comes from the phrase "market maker." It means a person who creates market liquidity. Maker fees add liquidity to the order back when a client makes an order. For instance, a trade limit order on an exchange isn't usually filled immediately. It's only triggered when an asset's price rises or goes below a particular limit.
Taker fees occur when liquidity is subtracted from an order book via market orders. Takers are traders who need to fill trading options as quickly as possible. The options can be market orders.
Takers will place a purchase or sell order for filling the available orders in the order book and charged taker fees after execution.
Why do Crypto Exchange Fees exist?
The logic behind crypto exchange fees is extensive, such that the best way to understand it is to explore the different mechanics involving cryptocurrencies.
Cryptocurrencies use blockchain technology in recording and verifying transactions. Cryptocurrency miners have to verify every transaction before it's included in the blockchain. Computing resources are involved in the verification to solve cryptographic problems. Every verification comes with a reward, which a new crypto coin.
The transaction fees, which is the difference, come in when the transaction output is less than the input. It will then be appended to the incentive value of the transaction block. Incentive miners will receive these fees instead of being charged to process the transactions. That means whenever there is a high crypto demand, there will also be higher transaction fees.
Once all coins are mined, the transaction fees become the only incentive for processing the transactions, especially in Bitcoins. It's essential to understand that the fees are a matter of convenience instead of necessity. If you’re willing to wait longer, your charges will also be lower. But since waiting cannot be indefinite, there’s a limit to how long one can wait. There are a few exchanges that offer reasonably lower fees when executing crypto trades, such as Binance.
How Do You Minimize The Crypto Exchange Fees?
The cryptocurrency exchange fees can have wide variations on the wallet of an investor. For instance, the average fees charged for Bitcoin transactions ranged between $4.38 and $62.77 for the months running from April to June 2021.
With wide variations in the crypto exchange fees, your trading strategies and timing are of uttermost importance. By employing the right tactics, you can significantly slash these fees to make your trades more lucrative. Here are tips you can use to minimize your crypto exchange fees.
Utilize the commission-free exchange platforms
With the outburst of online brokerage firms, the implementation of strategies to increase competitiveness also increased. One of these is zeroing the commissions on trades. Since Robinhood, or (Wealth Simple for Canadians) introduced commission-free trading, many other exchanges followed suit to remain competitive.
Some of the zero commission exchanges include Digitex, Lykke, and Blockfolio. Phemex offers premium users zero-fee spot trading, while Amplify charges zero commission on Altcoins and Bitcoin trades. Major crypto exchanges like Binance and Coinbase have some features that traders can use to minimize the fees.
Be Keen on the Transacted Amounts
Most of the crypto exchanges will charge a fractional fee of the traded amount, usually 0.1 %. For instance, if transacting a $20,000 worth trade, your fees might accrue to $2,000. In some circumstances, the fee might be standard across the board, but generally, the higher your transaction amount, the higher the charges.
Purchase Crypto with Crypto
When liquidating cryptocurrencies into government-backed currencies, you'll have to pay withdrawal fees plus related charges for depositing into a digital wallet. However, if you opt to trade using cryptocurrencies entirely, you'll be conducting commission-free trades in most cases.
Buy and sell cryptocurrencies and pay with another cryptocurrency to avoid the fees. For instance, you can buy Bitcoin and pay using Ethereum.
Use Promotions To Offset Crypto Exchange Fees
You'll come across different crypto exchanges with signup deals, among other offers that provide free cryptocurrency trades. When you come across such offers, seize them to help reduce the burden of fees on your trading portfolio.
For instance, Coinbase offers $5, Gemini $10, and Celsius $50 worth of Bitcoin when you sign up with them. Voyager will award you $25 while eToro $50 value of Bitcoin for successful referrals.
Some promotional offers will grant traders discounts for using some given promotional codes. Always check the exchange's website for promotional codes before executing your trades to reduce your fees.
Some exchanges will even facilitate direct bonuses for some cryptocurrency, rewarding up to $5 - $10 for each currency that you watch video or answer quizzes for. These can quickly help to recoup your initial transfer fees for new cryptocurrency owners. Since these bonuses are deposited directly into your cryptocurrency wallet, they can be traded, and even kept as an investment.
Use Limit Orders and Bank Deposits
Generally, funding your crypto account via bank wires, buying using credit cards, or using market orders can result in much higher fees. Instead, use bank deposits and limit orders to get reduced fees. Bear in mind that not all the exchanges have different makers and takers fees.
When crafting financial strategies, most investors will focus on the returns only. However, watching the costs of those investments is equally important. The crypto exchange fees can have a significant impact on your portfolio over a long period.
Since the cryptocurrency market is very volatile, you don't know when the next investment decision will pop up. And as such, it's very crucial to keep yourself updated with the various ways to minimize the fees to maximize your returns.
Ensure that you have a working strategy in place to buy, sell, and store cryptocurrencies. Also, revisit those strategies regularly to make sure no new development affects your returns negatively.Want to learn more about trading cryptocurrency?
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