When trading crypto, the fees involved are often overlooked. When buying the dip, investing for the future, or simply sending some coin to another wallet, fees can eat significantly into the value of a portfolio. For those who trade crypto regularly, keeping fees as low as possible is a simple and effective way to maximize profits and expect a better long-term return.
To help you learn how to trade with low fees, we’ve put together a guide that will ensure you never pay more than you need to with crypto.
Understanding fees
When dealing with crypto, there are 2 kinds of fees that you should be aware of:
Exchange fees
For centralized crypto exchanges to turn a profit and keep their operation running, they charge users a small percentage of each transaction as a fee. This percentage is typically 1% or lower and is often incurred when performing any of the following:
- Buying
- Sending
- Receiving
- Withdrawing
Network fees
As blockchains are hosted on decentralized networks of computers, those running it do so in return for rewards. These rewards are sometimes dished out by the network itself in the case of Bitcoin, but for networks like Ethereum, the users themselves pay the fee. This is known as the gas fee and varies depending on the blockchain’s current congestion level and the value of the native token.
Minimizing fees
1. Use a low-commission exchange
The simplest way to keep fees low is to use an exchange that charges less per transaction.
Amongst the cheapest are exchanges such as Binance (0.1%), Kraken (0.26%), and Swyftx (0.6%). These exchanges have different cryptocurrencies available but all feature the most popular, though their features, financial backing, and company philosophies do differ.
While platforms such as CoinBase are extremely popular, their fees are considerably higher (3.99%) and appeal largely to new crypto users.
2. Check the small print
Crypto exchanges are constantly changing their pricing models to draw in new customers or cover the costs of regulatory compliance. This means fees are changing all the time. Loyalty to a single exchange is often, therefore, financially unsound. Users should check fees regularly then and see if there’s a better option elsewhere.
3. Time your transactions
When it comes to gas fees, you can save a tonne of money simply waiting until the network is quiet. When demand is low, network mining rewards are also lower. The quietest time of the week for Ethereum, for example, is Sunday, between 2 AM and 3 AM.
4. Set a gas fee limit
Using a software wallet, such as MetaMask, you can also set a hard limit on how much you’re willing to spend on the transaction. Setting a lower limit will mean the transaction will take longer to complete, and can possibly fail. However, for those in no rush, this can save considerable money in fees.
5. Trade with cryptocurrencies
Sometimes, when trading out of a crypto position you may not necessarily need to exchange back to fiat. Converting an ERC-20 cryptocurrency to a compatible stablecoin, for example, will eliminate your exposure and induce very low fees.
Minimise spread
Something else to consider when learning how to trade with low fees is the role of spread.
Spread is the difference in price between the moment of buying and selling an asset. This can often far exceed the exchange fee. The spread is something a lot of traders neglect to observe and can take large chunks out of a portfolio over time.
Different exchanges have different spread policies so it’s taking this into consideration too. Binance and CoinBase, for example, have a spread fee of 0.5%. Others, such as Swyftx, have a slightly lower 0.45% fee.
Takeaway
While fees are part and parcel of trading crypto, keeping a close eye on the details can save you a lot of money in the long run. Keeping aware of your preferred exchange’s fees, and regularly auditing your processes using networks such as Ethereum will keep these costs to a minimum.
