Have you ever noticed that even after a successful trading day your profits are lower than expected? There can be multiple reasons, but the most likely one is also the simplest. Perhaps, you are not accounting for fees. In this article, we will talk about 4 fees you should consider when calculating your crypto profits. No more unpleasant surprises.
Every time you make crypto transactions, you pay small fees for using the blockchain. It’s called a transaction fee. For example, in the Bitcoin network, it’s around $4, Ethereum charges around $1.5 per transaction. The size of the fee depends on how busy and popular the network is.
The money goes to miners who validate your transaction and add it to the next block. Note that adding a fee is not a must-do. Also, a network does no come up with a fixed fee structure — you can pay as much or as little as you want. But paying nothing is not practical — miners would never take a “bare” transaction.
When setting a fee, follow the hints of your wallet. If in a hurry, increase the recommended amount to give your transaction a priority among miners.
Read our guide about Bitcoin fees to learn more about the topic.
It’s the fee that we pay to wallet providers for using their software. Some technically savvy individuals can broadcast their transactions directly, without any wallets, but most of us need a human-friendly interface.
While network fees are common for all the blockchain users, wallet fees are set by companies who developed the wallet.
Some wallets out there charge little to nothing. For example, our very own wallet Channels sports low fees. A Bitcoin transaction would cost no more than BTC 0.000005, regardless of the amount. What’s more, as long as you send money within the system — in other words, to another Channels user — you don’t have to pay any network fees at all.
These are the fees crypto exchanges charge for their services.
Exchange fees fall into 3 types: trading, deposit, and withdrawal fees.
A trading fee is an amount you pay per trade. Normally, taker fees range between 0.26% and 0.10%. Maker fees are much lower — from 0.16% to zero.
There are exchanges that advertise nearly non-existent trading fees. Be vary. Any exchange is a business, not a charity, so there may be a catch. Odds are, there are some hidden costs you have to consider.
These may include:
- Higher than average withdrawal fees.
- Credit or debit card deposit fees. Normally, they range between 5% to 2% but can reach 10% in extreme cases.
- Fixed taxes. For instance, Bitstamp may take $10 for depositing less than $1K.
The golden rule is to examine all these details when choosing an exchange for crypto trading. They may vary depending on where you live.
Imagine, you have BTC and need ETH. You may sell BTC and then purchase ETH. Or you may streamline the process by simply converting BTC into ETH.
The convenience comes with a price: a conversion fee can be 2% or even more. Watch out for those.
How to Avoid Overpaying?
Now you know what fees are eating away your profits. The next question is how to avoid or mitigate them? Here are a few tips.
- When not in a rush, set an average transaction fee: if you are ready to wait for a few hours, it makes no sense to increase network fees. Just opt for the amount your wallets suggests.
- Look for an exchange/wallet with low and transparent fees: you can even use open-source software, which is typically free to use. However, it’s not always secure: the developers may lack money or organization to keep up with the new cyber-threats.