Crypto trading fees can become a major expense if you are an active trader. Compared to stocks and other financial instruments, trading crypto is relatively expensive. Understanding how the fees work on exchanges, and ways to minimize these fees can save you thousands if not more every year. These are 4 crucial tricks to keep crypto trading fees low:
Use An Exchange Deposit Account
Exchanges charge massive fees for using a credit/debit card. Coinbase charges 4% for cards, and some other exchanges charge as high as 5%. You want to use an exchange deposit account instead. It is the cheapest why to buy crypto with fiat. You want to first use an ACH to deposit money into your Gemini or Coinbase Pro accounts. They don’t charge you for the deposit, and also all of the USD are FDIC insured. Your purchase fee is typically only .25% on most exchanges, versus paying 4%-5% with a card.
Add Liquidity with Buys & Sells
When you use limit orders on Coinbase Pro, you actually don’t pay any trading fees. They are rewarding you for adding liquidity to the market. You pay fees when you take liquidity, meaning you fill a buy order on the ask or a sell order on the bid side.
Note that you avoid trading fees on the exchange, but you are waiting to get your order filled. There is always a chance that the market won’t fill your order or only a partial fill, and you miss the move you were expecting.
But if you are in no rush to fill your order, there is no reason to take liquidity and pay the fees. This is especially important if you are trying to fill large size. The fee is .25%, so if you are buying or selling $100,000 worth of crypto, you would be paying a $250 fee if you take liquidity.
Avoid Over Trading
The best way to keep trading costs low is to trade only when there are high-quality opportunities. You pay no fees when you don’t trade.
Let’s say you day trade with $10,000 position sizes on Binance. If you are on the general level, you pay .1% fee per transaction (assuming you’re not using the Binance coin). If you made 5 trades a week, meaning 10 transactions in total, you’d be paying around $100 a week in fees. This adds up to $400 a month, and $4800 a year.
This can eat substantially into your profits, or make your losses even bigger. If you are going to be making 5 trades a week, make sure they are high-quality opportunities and not forced trades. Trading less will improve your trading profits, and lower your trading fees.
Avoid Withdrawal Fees
Exchanges will typically charge a withdrawal fee for taking cryptocurrency off the exchange. Instead of transferring cryptocurrency directly from your Coinbase wallet to other exchanges, send them to the Coinbase Pro exchange first. Then from your Coinbase Pro exchange, and from there send them to other exchanges you are on. There’s no cost for transfers from Coinbase Pro from Coinbase, and none from Coinbase Pro to other exchanges.
You should take the time to study exchanges and all of their fees. Depending on your style of investing, one exchange’s fee structure might be more suitable for you than another. Fees differ a lot across exchanges. Check out this article for a breakdown of the major exchanges and their fees.