When you trade crypto, your profits aren’t just decided by price moves. You also pay trading costs (like spreads and fees) and periodic funding costs if you borrow money. These can add up and quietly eat into your profits. Understanding each cost and how leverage works helps you keep more of your earnings.
Bid-Ask Spreads: The Hidden Cost
Every market shows a bid price (what buyers pay) and an ask price (what sellers accept). The spread is the difference between them. For example, if Bitcoin’s bid is \$90,000 and ask is \$90,050, the \$50 gap is the spread. When you buy at \$90,050 and immediately sell at \$90,000, you lose \$50 just to cross the spread. Spreads are effectively an invisible fee built into the market.
Spreads vary a lot by asset and liquidity. Major cryptocurrencies like BTC or ETH have tight spreads because they’re liquid. A low-volume altcoin might have a very wide spread (over 1%), meaning you pay extra just to enter the trade. Tighter spreads mean lower costs, while wide spreads, often in illiquid markets, can quickly eat into small profits.
Example: If an asset’s bid-ask spread is 1% and you buy it at the ask, you’re already 1% “behind” the market immediately. In contrast, a 0.05% spread on a highly liquid coin keeps costs much smaller.
Trading Fees: Maker vs. Taker
On top of the spread, exchanges charge trading fees. These are explicit costs (usually a percentage of trade value) every time you buy or sell. Many platforms use a maker-taker model. This incentivizes liquidity and can create more stable markets:
- Maker fee: You pay this smaller fee (or sometimes get a rebate) when you place a limit order that adds liquidity to the market.
- Taker fee: You pay this larger fee when you place a market order that takes liquidity immediately.
For example, an exchange might charge 0.05% maker fee and 0.10% taker fee. Using limit orders (maker) whenever practical saves you money.
Fees are charged on each side of a trade. So a round-trip trade (buy then sell) pays twice. For instance, a 0.1% fee each way on \$1000 costs \$1 when buying and \$1 when selling, totaling \$2 of fees.
Pro Tip: If you trade actively, keep an eye on your spread-to-fee ratio. In some cases (especially with illiquid pairs) the spread cost can exceed fees. For example, if BTC/USDT spread is 0.1% but the taker fee is only 0.05%, you’re actually paying twice as much in spread as in fees.
Funding & Overnight Fees
If you trade with leverage (using margin or derivatives), additional costs apply:
- Funding rate (perpetual futures): Perpetual futures contracts have no expiration date and use a funding mechanism. Periodically (e.g. every 8 hours), a positive rate means longs pay shorts or a negative rate means shorts pay longs. This keeps the futures price in line with the underlying asset’s spot.
- Overnight/rollover fees: On margin or CFD trading, exchanges often charge daily interest for borrowed funds. This is basically a fee for holding a leveraged position overnight or longer.
Check your platform’s fee schedule. Sometimes these rates are small (fractions of a percent) but can add up, especially on large positions held over time.
Leverage: Amplifying Gains and Losses
Spot trading uses only the funds you deposit – there’s no borrowing. This means no leverage and you can’t lose more than your initial investment. Spot trades are simpler: you buy or sell crypto, and that’s it.
Margin/derivatives trading lets you borrow money to increase your position size. For example, 10× leverage means \$100 controls \$1,000 worth of crypto. If the crypto then moves 5% in your favor, your position gains 50% (5% × 10) on your \$100. But if it moves 5% against you, you lose 50%. Leverage magnifies both gains and losses. Even a small market swing can turn into a big percentage change in your equity.
Example: You open a 5× leveraged long on Bitcoin priced at \$90,000 with \$1,000 of your own money (buying \$5,000 worth). If BTC rises 10% to \$99,000, your \$5,000 position is now \$5,500, a \$500 profit – 50% of your \$1,000, not just 10%. But if BTC falls 10% to \$18,000, you’d lose \$500 (50% of your \$1,000) and risk liquidation.
Because of this amplification, using high leverage is very risky. Always plan your position size and use stops to protect yourself.
Liquidation
High leverage carries the risk of liquidation. Exchanges set a maintenance margin: if your account equity dips below this level, your position will be automatically closed to prevent further loss. When a position is liquidated, you lose the money you put into that trade. For example, at 10× leverage, means a ~10% move against you wipes out your collateral and triggers liquidation.
Start Small: Low Leverage for Beginners
Given these costs and risks, it’s wise for beginners to start with low leverage.
Many experts advise new traders to “start small” and practice with low leverage. For example, 2× or 3× leverage (or use no leverage at all) gives you extra buying power without the extreme risk of 10×+ leverage. Always set stop-loss orders to cut losses early. This disciplined approach helps prevent catastrophic losses while you learn.
FAQs
What’s the difference between a spread and a fee?
The spread is the gap between the bid and ask prices – essentially a hidden cost you pay whenever you cross the order book. A fee (maker/taker) is an explicit charge by the exchange for executing your trade. Spreads vary by market liquidity; fees are set by the exchange’s fee schedule.
How much do crypto trades usually cost?
It depends on the exchange and asset. Major coins usually have very low spreads (like 0.01–0.1%) and trading fees around 0.05–0.3% per trade. Altcoins or low-liquidity coins might have much wider spreads and similar or higher fees. Always check both the spread and fee rates on your chosen platform.
What is leverage in crypto trading?
Leverage lets you borrow extra funds to control a larger position than your own capital. For example, 5× leverage means \$100 of your money can buy \$500 worth of crypto. This magnifies your gains and losses relative to price moves.
What is a funding rate?
The funding rate is a periodic payment made between long and short positions in a perpetual futures contract. When the rate is positive, long positions pay short positions; when it’s negative, shorts pay longs. It’s used to anchor the futures price to the spot price.
What are maker and taker fees?
These are two tiers of trading fees. A maker fee is charged when you add liquidity with a limit order (usually lower). A taker fee is charged when you remove liquidity with a market order (usually higher). Traders often prefer limit (maker) orders to reduce fees.
How are trading fees charged?
Fees are usually a percentage of your trade’s value. When your order fills, the exchange deducts the fee from your account. For example, a 0.1% fee on a \$1000 trade costs \$1. Both the buy and sell sides incur fees separately.
What is a liquidation?
Liquidation is when the exchange automatically closes your leveraged position because your margin can’t cover further losses. After liquidation, you lose the money you had put into that trade. It occurs when prices move enough that your equity hits the maintenance margin limit.
When do funding costs apply?
Funding rates apply only to perpetual futures contracts and are exchanged at regular intervals (commonly every 8 hours). Traditional margin trades may incur overnight interest fees daily. If you trade spot without leverage, you don’t pay funding or overnight fees.