Trading cryptocurrencies is not free.😲
When buying and selling cryptocurrencies on a trading platform provided by a centralized crypto exchange (CEX), you have to pay trading fees.
It’s important to be aware of the types of trading fees that crypto exchanges charge and understand how they work.
In general, when calculating fees on a crypto exchange, the fees are based on the type of order that you place and are charged when the order is executed and matched.
Orders are usually classified into two categories:
Orders charged with “maker fees“
Orders charged with “taker fees“
Maker fees are lower than maker fees. And both fees vary depending on your average trading volume over a given time period (usually the past 30 days).
As your trading volume increases, the lower your fees as a percentage of your trade size.
In this lesson, you are going to learn about:
The fee structure that crypto exchanges use that’s commonly known as the “maker-taker” fee model.
The concepts of “maker” and “taker“.
What “maker fees” and “taker fees” are and the differences between them.
What is a maker and taker?
The purpose of a crypto exchange is to match orders from customers who want to BUY cryptocurrencies with orders from customers who want to SELL cryptocurrencies.
For providing this “matching” service, a crypto exchange will charge you a fee when your order is executed (“matched” with another customer’s order).
The fee depends on the following:
The trading pair
Your trading volume within a specific time period
Whether your order is maker or taker
Most crypto exchanges utilize a “maker-taker” fee model for determining trading fees for all orders.
The maker-taker model is a way to differentiate fees between orders that add liquidity (“maker” orders) and take away liquidity (“taker” orders).
If you place an order that is executed immediately, you are considered a “taker” because this order takes liquidity and will be charged a “taker fee“.
If you place an order that is NOT executed immediately, but instead “rests” or “sits” on the order book, you are considered a “maker” because this order adds liquidity and will be charged a” maker fee“.
Maker and taker orders are charged different fees.
What is a maker fee?
A “maker fee” is charged for “maker” orders.
A maker order is an order you place that is NOT executed or matched immediately with a buyer’s (or seller’s) order on the order book.
More specifically, in order to be considered a maker order:
A buy order has to be placed at a lower price than the lowest sell order (or “ask”) on the order book.
A sell order has to be placed at a higher price than the highest buy order (or “bid”) on the order book.
Your order is ADDED to the order book. And when this happens, you become a “maker”.
A limit order is a maker order.
A limit order that is NOT executed immediately is considered a maker order.
For example, if BTC/USD is currently trading at $31,000 and you submit a buy limit order for 1 BTC at a limit price of $30,000, this order will not be immediately executed.
Instead, it will be added to the order book. The order will “rest” on the order book and will not be executed unless the price falls to $30,000.
By placing this order, you’re referred to as a “maker” because you added liquidity or “made” a market.
If you hadn’t placed that order, there may not be any other traders willing to buy 1 BTC for $30,000.
So if a seller appeared who was willing to sell 1 BTC for $30,000, there would literally be “no market” because there are no buyers willing to buy at the seller’s price.
(This would be similar to you going on eBay, listing your Rolex watch or Hermès bag for sale, and not a single buyer showing up. There is no market for your item.)
But with your order, you’re able to “make a market” because now there’s a buyer (you) who will buy from the seller.
This is why you’re called a “maker”.
What is a taker fee?
A “taker fee” is charged for “taker” orders.
What is a taker order?
A taker order is an order that is matched immediately against a buyer’s (or seller’s) order already on the order book.
More specifically, in order to be considered a taker order:
A buy order has to be placed at the lowest sell order (or “best ask”) on the order book.
A sell order has to be placed at the highest buy order (or “best bid”) on the order book.
Your order removes or TAKES existing orders on the order book. And when this happens, you become a “taker”.
A market order is a taker order.
A market order is considered a taker order since it executes immediately.
For example, if BTC/USD is currently trading at $31,000 and you submit a market order for 1 BTC, this order will be immediately executed.
By placing this order, you’re referred to as a “taker ” because you “took liquidity” from the market.
If you hadn’t placed that order, there would still be a sell order pending on the order book willing to sell 1 BTC for $31,000.
But since you “took” that order (your market buy order was immediately matched with the seller’s limit order), if another buyer appeared willing to buy 1 BTC for $31,000, there may not be another seller willing to accept that same price.
Examples of Maker and Taker Fees
Let’s look at an example of how a crypto exchange would charge you if you were a “maker” versus a “taker”.
Taker Fee Example
We’ll assume the following:
You want to purchase 3 bitcoin (BTC) at a price of $30,000
Your 30-day trading volume is currently at $100,000
According to the crypto exchange’s fee schedule, you will either be charged one of the following:
The maker fee of 0.15%
The taker fee of 0.25%.
Your order is executed with taker fees
In this example, the total costs of your order equals 3 * $30,000 = $90,000.
You place your order as a market order and it is immediately filled.
Because your order was executed as a “taker”, the total “taker fee” can be calculated:
$90,000 * (0.25 / 100) = $225
Maker Fee Example
In this example, you’re a big baller shot caller, known in the crypto world as a “whale” and assume the following:
You want to purchase 100 bitcoin (BTC) at a price of $20,000
Your 30-day trading volume is currently at $10,000,000.
According to the crypto exchange’s fee schedule, you will either be charged one of the following:
The maker fee of 0.02%
The taker fee of 0.10%.
In this example, the total costs of your order equals 10 * $20,000 = $2,000,000. Which is your toilet paper budget for one of your eight mansions.
Currently, BTC/USD is trading at $30,000 so you place a buy limit order at $20,000.
Your order is now “resting” on the order book.
The next morning, the crypto market tanks and bitcoin falls and your order gets filled.
Because your order was executed as a “maker”, the total “maker fee” can now be calculated:
$2,000,000 * (0.02 / 100) = $400
If you noticed, the maker fee is lower than the taker fee. This encourages traders to add liquidity.
The downside with maker orders is it can some take time for your order to be filled. It’s possible that your order will “rest” on the order book and never be filled if there aren’t a lot of market participants (known as a “thin market”).
Summary
A market for a given trading pair is made up of makers and takers.
There is always a maker and a taker for every executed order.
Makers create buy or sell orders that aren’t executed immediately. This creates liquidity, meaning it’s easier for other people to immediately buy or sell if they agree to the price specified by the makers’ orders.
The people who wish to buy or sell immediately are called “takers”. They “take” the orders created by the “makers”.
Makers are charged a “maker fee” when their order is executed, while takers are charged a “taker fee”.
Your order could be charged BOTH maker and taker fees.
For example, if you place an order that is partially executed immediately, you will be charged a taker fee on the portion.
The remaining portion of your order will be added to the order book and will be charged a maker fee if/when it is executed.
Let’s say that you wanted to buy 2 BTC. One BTC could be executed immediately (and you’d pay a taker fee), and if there are no more sellers at your price, you’d have to wait until one appears. And when a seller does finally appear and the last half of your order executes, you’d pay a maker fee.
In my opinion, you should try to use a limit order when making trades to benefit from a lower maker fee.
Generally, crypto exchanges reward makers with lower fees since they add liquidity. Since takers are provided the “immediacy” of being to buy or sell, they pay a higher fee for this benefit.
In summary:
Makers “create or make a market” by adding orders for other traders to take.
An order is charged the maker fee if the order is not matched immediately against an order already on the order book.
Takers remove liquidity by “taking” available orders that are filled immediately (and are charged a taker fee).
An order is charged the taker fee if the order is matched immediately against an order already on the order book.
“Maker” Orders “Taker” Orders
Adds liquidity to the order book Removes liquidity from the order book
Not filled immediately Filled immediately
