Crypto Trading: Investors Should Know These Fee Models news

Trade Bitcoin & Co for free? The free offers from many trading venues sound tempting, especially for cryptony newcomers. But be careful: costs are often hidden in the details. Whether it is fees due to the so-called spread or surcharge for deposits and withdrawals? -? Investors should think twice and rely on transparent and fair models.

A guest post by Sebastian Warnke, COO at Boerse Stuttgart Digital Exchange (BSDEX)

Low trading fees along with high security and convenience are top priorities for crypto traders when it comes to choosing a trading venue. But especially for newcomers, it is often unclear how different fee models are structured and what other costs are hidden “in the small print”. Especially when trading venues advertise for free trade, potential? -But also experienced? -Traders should take a closer look. Below is an overview of the most common fee models and hidden costs.

Fixed trading fees often depend on the type of order

Fees may vary by trading venue. Usually a distinction is made between three different models. While some providers charge fixed fees, other exchanges calculate costs based on order volume or price ranges when trading – the so-called spread. Trading venues with fixed fees usually calculate the costs after choosing the respective order type. A recipient order is executed e.g. immediately against an order already in the order book after it has been transferred to trading. It draws liquidity from the market and is correspondingly more expensive than a maker order. The order is initially placed in the order book in current trading and is executed later against one or more new orders received. This provides liquidity to the market. Depending on the order being executed, the trading venue charges a corresponding predetermined percentage fee.

Fee models with progressive price structure

Some trading venues offer fee models that are staggered and based solely on order volume. With low order volumes, such graduated models often take only low costs. After this, however, the fees gradually increase as the order increases. The price is so often only put on the ceiling again when the order quantity is very high. Above all, traders who are in the middle of the range in terms of order size should therefore trade foresight and keep an eye on the gradual increase in fees.

Spreading costs are difficult to calculate

Trading platforms often advertise for free trading. However, it is not true that there are no costs at all. Although no explicit costs are shown – an order therefore has no fixed prices. The cost of this, however, lies in the details: Trading places often earn less on their fee income, but primarily on the so-called spread. Trading venues forward their customers’ orders to a market maker, which ensures ongoing pricing on the trading venue and thus enables smooth processes. To execute customer orders, the market maker specifies purchase and sale prices – ie. different purchase and sale prices.

Implicit costs from the spread arise because investors have to accept the higher demand side of the order book to buy and the lower bid side to sell. The distance between the best (highest) bid (bid page) and the best (lowest) sales bid (query page) in the order book is referred to as the span, or also as “no man’s land”, because there are neither buy nor sell quotes. Now every trader who enters a trade must enter the market once and leave once. This results in the cost of diversification in the form of reduced profits or increased losses. The spread can change very quickly depending on market sentiment and news flow. With some crypto-trading platforms, the spread is around 0.5 percent, while others charge significantly more fees of up to 3.5 percent. This makes trading success difficult to calculate. These previously unpredictable costs can quickly bring interesting trades into the red. The more trades that need to be made, the more important it is to know and assess these hidden costs.

Four cost traps that investors should be aware of

Trading sites often promise free crypto trading, where the spread entails costs that traders incur with each trade. And: It’s by no means the only cost incurred in retail despite the “free promise”. In addition to the spread, crypto traders should be aware of the following hidden costs.

1. Limit fees: Many investors do not follow what is happening in the market every hour, often can not buy or sell spontaneously and prefer to plan ahead. The limit order is therefore a convenient solution for traders. Investors can set the prices at which they want to buy or sell at any time. The order is then executed automatically on the terms and conditions once the market has moved there. Limit orders are popular because they save investors time and prevent them from buying too high or selling too low. What many investors do not know, however, is that trading venues often charge fees just to set the limit order. The cost arises regardless of whether the order is actually executed. The same applies to fees that accrue when changing or canceling the order.

2. Partial Execution Fees: It is not uncommon for orders to be shared between trading venues. The order is then not implemented directly, but is divided into several transactions. At the end of the process, the customer’s order will be executed as intended, but it may well be that full order fees (especially minimum fees) will have to be paid for each of the split transactions. Traders should not lose sight of this aspect as the fees can increase so quickly and unforeseen.

3. Inactivity fees: Investors who rarely open positions when trading will have to pay a fine at some trading venues. Such inactivity fees are charged when investors do not trade for a certain period of time. Caution: On some exchanges, such a fine is charged after just a few months.

4. Fees for deposits and withdrawals: Trading venues pass on their costs to customers through deposits and withdrawals of cryptocurrencies. If you send your Bitcoin to a wallet or send it from your own wallet to the trading venue, you sometimes pay an expensive surcharge. For many traders, such costs only become visible in retrospect.

Trading places with transparent fees are fairer

The free fee models advertised by trading venues can prove to be a cost trap for investors if they do not look closely. Stuttgart Digital Exchange (BSDEX), on the other hand, offers investors a fair and transparent fee model without a double bottom. There are no hidden costs: BSDEX waives boundary fees, costs of deposits and withdrawals, inactivity fees and additional costs due to order splitting. BSDEX charges trading fees and spreads are of course also available. However, the total cost is typically well below those incurred by “free quote” platforms. As Germany’s first regulated crypto trading venue under § 2, paragraph 12 of the German Banking Act, BSDEX offers uncomplicated trading of the most popular digital assets on the market. And that with a high level of technical security: from identification to trade to depot, all BSDEX partners come from Germany.

Traders trade on the digital exchange in Boerse Stuttgart with transparent and fixed fees. A recipient order costs 0.35 percent of the transaction volume. A maker order even costs only 0.20 percent. Unlike other trading platforms, frequent traders are currently being rewarded. Thanks to a special campaign until the end of the year, the fees will be cheaper instead of more expensive as the volume increases. For example, investors trading cryptocurrencies with a value of more than 100,000 euros in a month pay only 0.24 percent instead of 0.35 percent for an order in the following month and only 0.12 percent for an order from the manufacturer .

How investors avoid cost traps

Many trading venues entice you in with cheap deals, but charge a wide range of costs elsewhere. Fees can quickly rise and ruin crypto trading. Instead, investors should look twice and orient themselves towards trading venues with transparent fee models. As a German trading venue, BSDEX offers a fair and transparent fee model.

Sebastian Warnke, COO at Boerse Stuttgart Digital Exchange (BSDEX)

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