Exchanges take a cut of your crypto funds for their services, and while you cannot wholly evade fees, you can avoid paying high fees by using some tricks.
The first thing that you need to be aware of is the different fee structures employed by exchanges and how you can manipulate them to your advantage. You can end up saving money by selecting the right crypto exchange for a specific transaction.
Let’s get into what fees you are usually charged on crypto exchanges:
The most basic fee on exchanges is the trading fee. This fee is applied when you trade a crypto for another crypto. A piece of simple advice would be to find an exchange that has the lowest trading fee. But there are many other fees that are added to the trading process as you will soon find out.
Other fees charged by exchanges may include address creation fee, deposit fee, and withdrawal fee for transactions. Most exchanges do not charge deposit fees, but this might result in a higher withdrawal fee.
Also, an exchange that does not charge any withdrawal fees can reflect in higher trading fees, or a small trading fee might have increased deposit and withdrawal fees.
You have to be careful of this strategy of hiding certain fees while heavily advertising the ones that are apparently smaller. Most exchanges market themselves in this way and hide the non-competitive fees in the fine print. That’s why many users complain online after trading when they find out the exchange took a larger chunk of their funds.
Some fees are calculated based on the percentage of the trade, while others have a fixed rate for all trading amounts. To avoid paying high fees when trading low amounts, do not opt for exchanges that use a fixed fee system.
When you see an exchange that claims they have zero commissions, no exchange fees, and no service fees, you start wondering, how do they make their money? Simple, they just sell the pair at a higher rate than the open market.
For instant trades, you will have to pay the exchange more for this type of premium service. Instant buying options come with inflated prices. Let’s say an exchange offers both types of services; buying Bitcoin instantly comes to apply a 7% transaction fee, while trading on their market would have a lower price per trade, somewhere below 1% usually. Naturally, you would opt for placing a market trade instead of going for instant trade.
Other hidden commissions involve conversion fees. If you deposit any other fiat currency into an exchange that only accepts dollar, you will be charged a fee for converting your currency. But how much can a conversion fee cost? Well, Coinbase adds a spread of 0–2% to the exchange rate. And if you want to cash out in the same account, you will lose money on the exchange rate twice. A good way of avoiding paying high fees of conversions is by making them in advance in real life before depositing or withdrawing on any exchange.
Now that you have a better understanding of how fees work on exchanges, let’s explore some methods of minimize these fees so you can get the same money in your daily active trades.
Never Use Credit Cards
Making fiat deposits via credit or debit card incur astronomical fees on any exchange. Coinbase applies a fee of 3.9% for credit card deposit, and the charge can go up to even 5%.
So instead of using a credit account, you should opt for an exchange deposit account, bank account, or e-wallet.
Exchange deposit accounts can be funded via ACH, and you are usually not charged for the deposit, and most of these accounts are USD that are FDIC insured. By using this type of account, the trading fees can be somewhere in the 0.25% range instead of 4%-5% fees that are charged by using a card.
Add Liquidity Through Your Market Orders
There are certain exchanges that reward users for using limit orders, where you not only avoid paying high fees, you actually don’t pay any fees at all. This is their way of rewarding traders for adding liquidity to the market. However, you pay fees when you take liquidity (what’s called as a taker fee), meaning you fill a buy order on the ask side, or you fill a sell order on the bid side.
Be Mindful of Withdrawal Fees
Instead of directly withdrawing cryptocurrency from your Coinbase wallet to other exchanges, you can opt to move them to Coinbase Pro first.
Then, from your Coinbase Pro account, you can transfer your funds to other exchanges. There are no fees applied for moving your funds from Coinbase to Coinbase Pro, and there are also new fees incurred when moving crypto from Coinbase Pro to other exchanges.
Peer-to-peer platforms or marketplaces make enable individuals to connect with each other without requiring a third party to mediate the transaction. The two parties establish the terms of the trade on their own, and agree upon the selling or buying price, as well as method of payment and location (if they decide to meet in person).
Some of these marketplaces are LocalBitcoins, Paxful, and LocalEthereum. Even if there are no trading fees, conversion, deposit or withdrawal fees, the platform applies a 1% fee for sellers. Buyers do not have to pay any fees.
Another disadvantage is that such platforms have fewer users, so you will have to wait in order to find a seller, and once found one, you have to be very cautious, as there are many scammers.
Trade Only When You Have To
The simplest way to avoid paying high fees is to not trade at all. By trading actively, the money you will spend on dozens of fees adds up. So the best move would be to trade rarely only when there are opportunities that can yield high-profit results.
If you are an active trader, you should closely examine the exchanges and all of their fees. Even though you might find one with lower fees in one department, it will most likely have higher charges for other aspects. You should consider your trading style and how you can use it to dodge paying unnecessary costs.
Featured image: cryptowisser.com
Source From : Coindoo News