Hidden Fees: Traders should watch out for these costs when trading Bitcoin & Co

Many crypto trading venues entice you with free trading – the extra costs are usually in the details. Newcomers in particular lose sight of the different pricing models. Sebastian Warnke, COO of Boerse Stuttgart Digital Exchange (BSDEX), shows how fee models differ from each other and what hidden costs traders need to be aware of.

For many new investors, the fee models on trading platforms are complicated because it is not always obvious at first glance what the trading costs are. What are trading fees made up of?

Warnk: The amount of trading fees mainly depends on the type of trading. One of the decisive factors is the order placed. This may vary depending on the trading platform. With the BSDEX, for example, it looks like this: a take order costs 0.35% of the trading volume and is executed immediately after transmission in a trade against an order already in the order book. It removes liquidity from the market and is therefore more expensive than a production order, which costs only 0.20% of the transaction volume. The order is initially placed in the continuous trading order book and subsequently executed against one or more incoming orders, thereby providing liquidity to the market. These are fixed trading fees that are explicitly defined. Additionally, many exchanges have implicit fees that traders often don’t see directly.

One of these implied trading fees is what is known as the spread. What exactly is meant by this type of fee?

Warnk: The spread is the cost traders pay to complete a buy and sell transaction. The spread is basically the difference between the lower bid price and the higher ask price in an order book. The bid price is the highest price investors are willing to pay. The ask price, on the other hand, is the lowest price at which investors are willing to sell. A large gap means higher costs; if the spread decreases, the implied transaction costs also decrease. The problem for many traders is that the spread is difficult to calculate. Especially if you want to act quickly and you don’t have much time. An explicit transaction fee is therefore much more transparent and fairer for investors than the costs implicit in the spread.

The level of fees is an important criterion when choosing the trading platform. What should frequent traders pay particular attention to?

Warnk: For traders with low order volumes as well as frequent traders, cheap fees and the transparent list of these costs are key. Since every purchase includes transaction costs, these should be first be generated again through trade. With high fees, frequent traders must therefore enter the profit zone with their position even faster in order to recoup the trading costs. Investors should be careful with platforms that initially offer low or no fees, but then add high hidden costs to each individual trade. Here too, fixed costs have an advantage over implicit costs which are not recognizable at first glance. The reason: Since the spread is variable, it is more difficult to predict a supplement for frequent traders. Conversely, with a fixed cost model, the cost per trade decreases.

How does the crypto market differ from traditional capital markets – and what makes digital assets attractive to traders?

Warnk: The market for digital assets like Bitcoin has two characteristics that many traders appreciate. On the one hand, the crypto space is known for its high volatility. Although high volatility increases investment risk, it also gives crypto traders an edge. Because price fluctuations can increase the number of trading opportunities per unit of time. While less volatile markets rarely allow for optimal entry and exit, digital assets such as Bitcoin often offer relatively good trading opportunities several times a day. The second big advantage: Unlike traditional stock markets, Bitcoin & Co are traded every day and at any time, the markets do not close. Traders appreciate this time flexibility and can easily spread their trading hours throughout the day.

Trading places often advertise exchanges free of charge. How come such “no-cost” strategies are possible?

Warnk: Typically, merchants don’t pay an explicit fee for such offers – but the costs are often billed elsewhere, which is less obvious to merchants. These may include implicit costs such as spread or network fees and trading platform fees. In the crypto industry in particular, costs are passed on to customers through cryptocurrency deposits and withdrawals. If you send your bitcoins to a wallet or from your own wallet to the trading platform, you sometimes pay an expensive surcharge. For many traders, these costs only become apparent in retrospect.

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