Why are Cryptocurrency Trading Fees So High?
For coins like Bitcoin that have been mined completely, transaction fees are the only incentive for miners to process the transaction. However, the fees are mainly based on convenience and not necessity. People who can wait for a longer time will pay lower transaction fees. Still, there is a minimum threshold to pay in fees, no matter how long you wait.
Ways to Reduce Cryptocurrency Fees
While some fees are unavoidable, you can still reduce the amount you pay on fees. Here are a few tips.
Reduce withdrawal fees
You may be able to pay zero fees for withdrawal on some exchanges. Some exchanges offer free withdrawals. You can avoid paying the fees by transferring the coins from one exchange to another that does not charge for withdrawal. The only challenge is the different processes. However, it may be worth it if you want to save some of your profit.
Fund Your Exchange
Most people make the mistake of buying cryptocurrency directly with their bank cards. It is often a convenient way to buy cryptocurrency. However, it can result in costly transaction fees, as noted above. Banks make money from such transactions, which may seem small, but can amount to a lot if you are an active trader. They charge you for using their credit/debit cards.
Also, you may pay extra depending on the exchange you buy from. Foreign transaction fees are usually charged by credit card issuers on transactions that are processed for a foreign merchant or take place overseas. The fees are usually around 3 percent of the transaction value. It is quite common in the US among financial institutions.
Cards have lots of benefits, but the reality is that such cards attract large fees when used to buy crypto. However, you can reduce the cost by funding your exchange with fiat instead. When that is done, you can use the cash in your exchange to buy crypto. This is quite useful and is not as expensive as buying the coins directly with your debit or credit card.
Lots of exchanges encourage such transactions, so they offer zero fees for them. There is one downside to this method. It may take some time for your cash to show up in the exchange wallet. If you choose to use this method of funding, then do it early enough and not when you need to trade urgently.
You can always deposit funds before your trading periods so you can have a reserve fund to fall back on the exchange. This means having some fiat in your exchange wallet for emergencies when you need to trade. It will help you reduce fees and take advantage of some trades.
Purchases in this type of transaction are usually really low. Some are merely 0.25 percent. The cost of transferring directly can be as high as 3.99 percent of the transaction.
Understand the Fee Schedule for Exchanges
It is important to study different cryptocurrency exchanges and their transaction charges. Different exchanges have varying fees. So, research the exchange you plan to use and understand their fee schedule. There are a lot of online resources to help you break down the fees. You can also check crypto community pages.
Check as many as possible to know their fees and rates. Note that some exchanges may have low upfront fees with hidden backend fees, so be careful not to miss any of that. Some apps may allow you to trade with reduced fees for some cryptocurrencies. Be sure to check the terms, so you don’t spend more while avoiding fees.
Use the Free Maker Option
Some exchanges prioritize orders and have maker order options where traders can use already deposited funds. This way, you can put a maker buy order in place. It does not attract any fees, and you can also buy cryptocurrency at lower prices than the market price.
These exchanges also have options to limit orders. Traders can instruct the exchange to sell or buy any amount of cryptocurrency when it exceeds a certain price. Limit orders like these do not attract fees. They can also come in handy if you know what to do and how to use them.
Find New Offers
Cryptocurrency exchanges often have new offers to get more users. They encourage traders to sign up and trade at a reduced cost. You can find such offers and take advantage of them. They can really cut your fees down. Some of these exchanges have discounts running into 15 percent or higher. They may not last long, but while they are available, you can take advantage of the reduced fees.
Consider ACH Transfers
Some exchanges allow you to use ACH transfers to deposit cryptocurrency. It is a lot better because the funds are available almost immediately after. You can use fiat to buy cryptocurrency on the exchange.
This is not always the case for several other exchanges. It may take up to five days for the funds to reflect. Also, there may be some limits to how much you can add to the exchange with this method. In some exchanges, it is $500. This means you will only be able to fund the wallet with $500. It may not always be convenient.
Transaction fees can affect your profits in so many ways. It is essential to know what they are as well as how to reduce them to the bare minimum. It may not always be possible to avoid fees, but you can take some steps to reduce the cost. Knowing about them will also help you to avoid overpaying.
Cryptocurrencies are trying to find new ways to reduce transaction fees. As time passes, the effort could pay off and result in lower transaction fees.