Cryptocurrency is like any investment that investors trade with the goal of selling later at a higher price. But like other investments, fees, commissions and other trading costs can cut into the profit one makes.
This is true when buying and selling stocks, but even more so with cryptocurrencies, whose fees can vary widely from one form of crypto to another, one exchange to another, and can even change from hour to hour. One reason for the variability in fees is that cryptocurrency exchanges are not regulated like brokerages and stock exchanges.
But while the details of what each exchange charges to trade each of the many types of cryptocurrency will vary, there are a few trends to keep in mind.
Trends in Crypto Trading Fees
Most cryptocurrency exchanges design their fee schedules at most cryptocurrency exchanges to entice traders of large blocks of crypto. So fees tend to decrease as the size of trades increase. Some exchanges try to compete for the largest orders by charging no fees at all on massive trades of $10 million or more.
Exchanges also typically charge fees when an investor wants to cash out into a fiat currency, like U.S. dollars. Those fees can be much higher than the transaction costs of trading one form Bitcoin or altcoins with one another, which is often free. This is one way that crypto exchanges encourage investors to remain on their platforms.
Recommended: What Are Altcoins?
Crypto exchanges don’t always play nice with one another. Even though the Bitcoin or other cryptocurrency or that an investor owns remains in their crypto wallet, some exchanges will charge a fee to import a new wallet with crypto purchased on another exchange. Or they may charge to port over a wallet with crypto purchased on its platform over to another exchange.
Examples of Cryptocurrency Trading Fees
Binance is the world’s largest crypto exchange, and its U.S. exchange charges investors a flat fee of 0.1% of the amount of each spot trade. On top of that, it charges a 0.5% fee if the investor wants the transaction executed instantly. That may not seem like much, but on a $1,000 Ripple trade, for example, an instant trade will cost the investor $6. On $100,000, that rises to $600.
And Binance.US charges a 0.5% fee to trade crypto directly with U.S. dollars. Investors can avoid that fee by depositing cash into their Binance.US account and then placing an order for the cryptocurrency of their choice. That will take longer, however.
The 0.1% standard fee Binance.US is only available for trades using assets on the Binance.US trading platform. Other large exchanges, including Coinbase and Gemini, have similar fee structures.
There are some differences between exchanges. The Global Digital Asset Exchange charges a 0.3% “taker fee” to trade a market order, and Coinbase charges a 4% fee for investments made using a credit card.
Factoring in Spreads
Investors must understand the spread between the bid and ask prices of a crypto, such as Ethereum, listed on an exchange. Spreads are not fees, strictly speaking, but they are trading costs and they act like fees by eating into the return on the investment.
Seasoned investors in the stock market know about these spreads, which tend to mean that the buyer of an asset will pay slightly more than the average price, while the seller will receive slightly less than the average price quoted on the exchange.
For less-heavily traded forms of crypto, there’s also a chance that a big trade could change its price. When trades move the market, the sale of the crypto can drive down the price, while a big purchase can drive it up. Spreads on crypto trades vary widely from currency to currency and from day to day, but can be as high as 1.5%.
5 Ways to Pay Less for Crypto Trades
While you may not be able to completely trade crypto without fees, there are several strategies that investors can use to lower the cost of their crypto trades.
1. Trade Less Often
One thing that transaction fees and bid/ask spreads have in common is that the more often you trade, the bigger an impact they’ll have on your final return. Each trade comes with a fee, which the exchange deducts from your balance. And each trade also occurs with a spread, which leaves you with a lower return than you might expect when you look at the bid/ask price for the forms of crypto, such as Litecoin, that you’re trading.
For investors who are regularly trading between their crypto accounts and their bank accounts, those transactions are even more costly. So, one simple way to drive down the fees – and the overall trading costs – is to HODL and trade less frequently.
2. Use Lower-Cost Trade Types
Another way an investor can reduce the fees they pay for their crypto trades is to look closely at the type of trade they execute. Limit orders, for instance, often come with lower fees. In a limit order, an investor agrees to buy or sell a stock at a specific price, or better. That means that a buy limit order executes at the limit price or one that’s lower, while a sell limit order executes at the limit price or one that’s higher. But with limit orders, the investor has no certainty of order fulfillment. If the market moves away from the limit price, then no trade occurs.
3. Shop Around
With so many exchanges competing for crypto investments, trading fees are changing on a regular basis. It can pay to do some comparison shopping, especially for investors who trade frequently, or for investors who expect to cash out in the near future. But those fees should be only one consideration. Given the potential for catastrophic security issues with cryptocurrencies, an exchange’s security, and its backing, also deserve close consideration.
You’ll also want to think about which cryptocurrencies, it covers. Many exchanges might offer Bitcoin, for example, but not all of them may support smaller altcoins like Cardano.
Recommended: How to Buy Cardano
4. Rewards and Promotions
Cryptocurrency exchanges are still relatively new, and heavily competitive. There are a steady stream of new competitors offering investors rock-bottom fees, or even fee-free trading to win new accounts. But being one of the first customers of a crypto exchange can be risky.
Still, even some of the biggest players regularly offer low- or no-fee promotions to win new accounts. But beware that those promotions usually have an expiration date. When the promotions expire, the investor has to decide whether to keep on trading at the exchange’s usual rates, or transfer their crypto assets to another exchange, which can often come with additional fees.
5. Turn Your SoFi Credit Reward Points to Crypto
SoFi allows its credit card customers to exchange SoFi Credit Card reward points directly for cryptocurrency via SoFi Invest®.1 Currently, this is the only credit card reward program that allows for cryptocurrency redemption.
Fees and other trading costs can take a big bite out of crypto investor’s returns. But understanding how fees work and planning your trading strategy to minimize them can reduce their impact on returns.
You can start investing in crypto today by opening a SoFi Invest brokerage account to purchase cryptocurrency, as well as stock and exchange-traded funds. You can use the SoFi Invest online investment app to trade your first cryptocurrency with as little as $10.
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1See Rewards Details at SoFi.com/card/rewards.
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