With a wide range of crypto exchanges, it’s not easy to find the right one to buy and sell popular cryptocurrencies. While some people choose the exchanges that offer specialised features, others opt for platforms with the most competitive fees or speeds. So are low-fee exchanges worth your choice? Keep reading to know what costs you more than just the fee!
What is a cryptocurrency exchange?
A cryptocurrency exchange is an online platform where you can purchase, sell, and trade cryptocurrencies. It functions similarly to an online broker in that customers can deposit fiat cash (such as US dollars) and use it to purchase cryptocurrencies.
Users can also exchange their cryptocurrency for another, and some exchanges permit users to earn interest on their exchange account balance. Some support advanced trading features such as margin and futures trading, while others support crypto staking, which gives you passive income on your crypto holdings.
What fee does a crypto exchange charge?
When searching for the best crypto exchange, many may find it hard to make direct fee comparisons because there’s very little standardisation across the platforms. One might charge you more to withdraw money but offer cheap deposits. Another might provide free trading but with poor exchange rates. Below are some fees that can surprise you.
Deposit fees
Most crypto exchanges offer a variety of deposit methods, including bank transfers, credit card deposits, and PayPal transfers. Usually, transferring money directly from your bank is free, while using a credit or debit card often incurs a 2 to 5% fee. You may have to pay 2.5% or more when depositing money via PayPal.
Trading fees
Trading fees occur in various forms, depending on the amount spent, the “convert” feature and other advanced trading tools. For instance, CoinSpot fee for instant sell/buy feature is 1%, which is so competitive given the fact that you can have access to instant liquidity and avoid potentially missing trades due to your orders not being filled.
Ensure that you comprehend what you’re being charged to find ways to lessen them. Here are the most popular trading fees:
- Flat-rate: One of the most prominent exchanges charges a $0.99 fee for transactions under $10 and higher fees for greater deals.
- Percentage fee: You may encounter a maker/taker charge that is a proportion of the total trade. This may be minimised by paying using the platform’s utility token and typically decreases with increased trading volume.
- Lower rates: Some low-fee platforms conceal their fees in the spread they offer. Consider carefully how much cryptocurrency you are receiving per dollar. You can compare the total with what you’d get on other platforms.
Withdrawal fees
The withdrawal fee is less of a problem if you leave your assets on the platform where you purchased them (in a custodial wallet). You have the option of withdrawing fiat currency to your bank account, which will likely cost a percentage charge.
You can transfer your bitcoin to a different platform, a non-custodial wallet, or the wallet of another individual. Some platforms provide a restricted amount of free monthly withdrawals. Others do not charge for withdrawals to their external wallet, but you will be charged for other wallets. For example, the Swyftx withdrawal fee varies based on which wallet you withdraw your funds to. You can read our detailed review of Swyftx fees and its features to know more about it.
What do exchanges pay for by your collected fee?
Payment gateway
Some exchanges, like Coinbase, may be used as payment gateways in addition to their typical functions. It permits instantaneous Bitcoin-to-fiat money conversion without requiring the merchant to request a withdrawal.
The provider uses a cryptocurrency wallet to accomplish this process. If this fiat currency is within a payment system, there’s a fee from the transaction validators of the currency network. The provider often passes on these costs to customers and charges service fees to continue functioning and providing their services.
Human resource
It involves a lot of human resources to keep crypto exchanges working correctly and bring the best experience to customers. For instance, developer operators or system administrators are responsible for IT infrastructure and other technical aspects, while marketing staff are in charge of promoting the exchange services and building brand awareness. Crypto exchanges have to pay for their employees, and the fees they charge you for their services are one way for the exchanges to have funds to pay for their staff.
Customer Service
Also often included in the service fee that crypto exchanges charge is the cost of employing customer support staff. They are people with an understanding of the crypto exchanges, provide timely answers to customer inquiries and handle support tickets. However, not all exchanges have a professional customer support team, and some, such as Swyftx, also use automatic bots to handle simple questions from users.
Security
The need for a highly secure crypto exchange is self-evident. Holding your coins in an exchange means that you need to trust someone else with your funds. Crypto exchanges need regulatory oversight to avoid illicit behaviour, illegitimate usage, and hacking. You can read more in this CoinSpot review article to know about some high security standards a crypto exchange should have.
Not all exchanges, however, devote substantial efforts to enhancing their security systems. For instance, when we compared CoinSpot vs Swyftx, we see that while CoinSpot has the best security features, Swyftx seems to downplay this aspect. There’s no reason for Swyftx and the exchange alike to charge you a high service fee for their lax security.
Product development
The crypto sector is highly competitive, and crypto exchanges compete to develop a holistic system with diverse functionalities catering to the needs of investors and traders. Specifically, they invested money in R&D to introduce more valuable and innovative product features. And the service fee you pay for a crypto exchange can include a small fee for R&D activities to develop new product features.
Low fee exchanges, what you may not have?
Timely customer service
Most low-fee exchanges don’t pay due attention to customer service. Instead of hiring customer support staff, they opt for an automatic bot that directs users to articles. This is inconvenient, especially if you are a novice investor who may encounter a technical issue, an attack, or a theft along the way. Therefore, selecting exchanges with customer support is highly recommended, and it’s worth paying a bit more (often not much) for all the timely assistance you receive.
For instance, in Australia, CoinSpot is an exchange with highly-rated 24/7 customer service. CoinSpot live chat’s response time is super-fast, often within 3 seconds, while on some global exchanges, you have to wait days or weeks to get an email back. To know more about CoinSpot fees and other features, please read our CoinSpot Review post.
Security
No exchange is 100% secure in crypto, and it’s hard to know which is the most secure cryptocurrency exchange. Since 2012, at least 46 Bitcoin exchanges have experienced a total fund loss of nearly $2.66 billion due to cyber security breaches. For example, Binance, Kucoin, Bitfinex and Crypto.com all previously encountered hacks, with the unrecovered loss of $40 million, $275 million, $623 million and $34 million, respectively.
You can consider which exchanges have been around for a long time, have many positive customer reviews for security features and have the fewest problems. It’s worth paying a bit more for the exchanges with the excellent security features and certifications in exchange for your peace of mind!
