Cryptocurrency exchanges charge fees to fund operation costs, list new trading pairs, and reward market makers. Even though you hate paying fees, they are necessary for keeping an exchange alive and responsive. But did you know that you pay two different kinds of fees depending on how you place an order?
Traders play various roles. Sometimes they take liquidity, sometimes they provide it. Whenever a trader places an order that instantly takes liquidity from the order book he is a market taker. An example would be placing a market order or placing a limit order at the current market price.
When a trader brings new liquidity by placing an order at a level that the market does not instantly fill, he becomes a market maker and pays maker fees. If I place an order to sell 10 Bitcoin at $69,420 while the asset sells for $47,000, the exchange will charge me maker fees for providing liquidity.
But what is the difference between maker and taker fees? In this article, I’m going to explain how the two work and show how to trade cryptocurrencies and pay the cheapest fees.
Maker and Taker Fees: Key Differences
Does the phrase market maker ring a bell? Market makers are famous for moving prices, filling gaps, fixing price inefficiencies, and having a loving relationship with exchanges. But why is their reputation so grandiose?
Market makers provide liquidity that otherwise isn’t there, exchanges reward them by charging lower fees. Market makers sometimes pay anywhere from 33% to 400% lower fees compared to takers. Moreover, exchanges have a tier-system which charges even lower fees to traders who bring significant liquidity on a monthly level. This leads to situations where VIP market makers pay no fees at all.
The image above shows Bybit’s maker and taker fees for spot and futures trading. Takers and makers pay the same fees when trading spot without significant volume. However, makers pay six-times less fees when trading at the same volume on futures markets.
As both traders execute high-volume trades and move a tier up, they pay fewer fees. However, the market maker always pays significantly lower fees. And once he reaches the Pro 1 tier, the market maker pays no fees.
Earlier in the article, I mentioned that exchanges reward market makers. With Bybit, you have noticed that MMs pay lower fees, but did you know that they can also receive fees as rewards?
The image below shows Binance’s fee system for its futures market. Traders who use trading pairs denominated in BUSD (Binance’s native stablecoin) earn negative fees once they pass a monthly trading volume of 15-million dollars. Negative fees means that the exchange pays you to place an order or – in the case of futures – keep a position open.
If you place orders worth only hundreds or thousands of dollars you might not care that much about maker and taker fees. However, you’ll feel different once you start trading million-dollar sums. Combine factors such as slippage, futures fees, and order fees, and you’ll end up losing five-figures just placing an order.
Paying lower fees, not paying them at all, or receiving fees as rewards sounds attractive. However, the disadvantage market makers face is that they must wait. They have to wait until the market fills their order. Most of the time, that’s not a good position to be in. Perhaps you’re targeting a dip in the market, but what if it never comes? You’ll miss 30% in profits for 2% in fees.
Other Types of Exchange Fees
Exchanges charge fees for different types of activity – some of which are not trading-related. The section below delves into deposit, withdrawal, fiat, and account fees.
Deposit and Withdrawal Fees
Cryptocurrency exchanges don’t charge deposit fees. When you transfer crypto from a wallet to an exchange account, the wallet will charge you a network fee for moving money. However, exchanges might charge a setup fee for depositing into a new token address not previously used – such as an SOL or BSC version of USDT. Exchanges also enforce deposit minimums.
For withdrawals, exchanges typically charge fees according to the gas costs of each network. This figure can vary and is sometimes slightly higher than the network fee. Below are the fees that Binance charges for withdrawing USDT. You can see that the fees are higher on Ethereum while lower on Solana, mirroring the respective gas costs of both networks.
Like with deposits, exchanges also enforce minimum limits for withdrawals. Withdrawal limits
can be higher as exchanges incentivize users to deposit more and withdraw less.
Fiat On-Ramp and Off-Ramp Fees
You might have to pay a fee when moving fiat money into or out of an exchange. This includes buying cryptocurrencies using a debit or credit card or liquidating crypto assets into fiat and moving the fiat to your bank account.
The image above shows Binance’s fees for USD and EUR. The first row of numbers shows deposit – or buying fees – while the second shows withdrawal fees. Note that you might have to be a certain KYC level before withdrawing large sums of money. Exchanges impose withdrawal limits on users who do not share enough personal information.
Unlike TradFi, cryptocurrency exchanges do not charge account fees. You do not need a minimum capital amount to qualify for trading. Crypto exchanges also don’t charge your account for inactivity. Opening an account at any crypto exchange is free.
However, you’ll have to prove your identity by providing the necessary KYC (Know Your Customer) documents to trade. Some exchanges allow KYC-less trading but they enforce strict withdrawal limits.
If you want to learn more about liquidity and how makers and takers interact on an order book, I suggest reading the following articles:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.