Reducing Trading Fees: Strategies for Maximizing Profit
Trading fees can have a detrimental impact on the profitability of a trading strategy. Unfortunately, when it comes to trading crypto, hidden charges can quickly diminish hard-earned gains. However, there are tactics that traders can employ to minimize fees and carve out a larger profit margin.
For those who trade infrequently, trading fees may not seem significant, especially when they are listed at a fraction of a percent. If you only make trades to rebalance your portfolio or for monthly dollar-cost-averaging, you may not pay much attention to the fees involved.
However, for frequent traders, fees can greatly impact profits. Furthermore, the world of crypto trading involves various types of fees that may not always be obvious upfront.
Different types of fees exist in crypto trading. Order book exchanges typically operate on a maker-and-taker fee system. Maker fees are applied to limit trades, which add liquidity to the order book by not needing to be filled immediately. Taker fees, on the other hand, apply to market trades, which are filled immediately. To incentivize traders to place limit orders, many exchanges charge lower rates of maker fees.
Trading crypto perpetual futures also incurs a funding fee. These types of futures contracts do not have an expiration date, so the funding rate helps anchor the futures price to the spot markets through periodic rebalancing. While one side of the trade pays the fee, the other side benefits.
Centralized exchanges also impose withdrawal and deposit fees for moving cryptocurrencies between wallets, and these fees can vary significantly between companies.
In decentralized finance (DeFi), decentralized exchange (DEX) traders benefit from a more straightforward fee structure, as DEXs typically charge a flat percentage per trade. In Uniswap V3, for example, this can range from 0.01% to 1%. However, it is important to note that blockchain transaction charges may vary depending on the platform used.
Considering the various fees involved, there are several ways traders can reduce their fee burden:
1. Find exchanges with favorable fee structures: Some exchanges operate tiered systems or offer fee-based incentives for traders who trade in high volumes. MultiBank.io, a leading financial derivatives institution, offers a sliding tiered fee system where traders can receive discounts of up to 80% on standard trading fees by meeting a minimum 30-day trading volume and holding the bank’s native MBG token. With its strong regulatory oversight and global presence, MultiBank.io provides deep liquidity and tight spreads to crypto traders.
2. Optimize your trading strategy for fees: Utilize limit orders instead of market orders, as exchanges typically charge less for maker orders than taker orders. Additionally, be aware that trading derivatives such as futures can result in additional fees due to the funding rate, especially during periods of high volatility. Consider the impact of leverage on fees and potential losses, as leveraged trades still incur fees and can compound losses if the market moves against the trade.
3. Seek low-cost infrastructure: Many major DeFi protocols now operate on multiple blockchain platforms, offering more opportunities to optimize trading strategies for lower fees. Platforms such as Polygon, Solana, Avalanche, and Arbitrum provide substantial liquidity with significantly lower transaction fees compared to Ethereum. Additionally, some centralized exchanges link withdrawal fees to the underlying network costs, making it beneficial to use low-cost platforms whenever possible.
While trading fees cannot be completely avoided, traders can mitigate their impact by understanding where fees are likely to eat into profits. By seeking out favorable fee structures, optimizing trading strategies, and utilizing low-cost infrastructure, traders can reduce costs and maximize gains.
