Crypto Trading and the Costs Incurred: What’s the Best Way to Buy and Sell?

05 Feb 2020

If you are keen to start making a profit on trading cryptocurrency, you need to get smart with your crypto trading – and fast.

Naturally, what you'll want is to keep your overheads as small as possible when buying cryptocurrency to sell down the line for a profit. In this realm of crypto trading, it’s important to be aware of all the various fees you might incur that can have a huge impact on the bottom line of your trades.

A good mental starting point would be to consider trading cryptocurrencies just like the world of traditional fiat forex trading. With forex trading, it's important to get a handle on the value of each trade, in terms of the spread and margin offered.

Crypto exchanges will operate in a similar vein to forex markets, with a spread creating a value difference between the price available to invest and a cryptocurrency's actual value - the price difference is seen as the exchange's commission. By getting your head around trading forex, you should be able to get to grips with crypto investing much quicker, without the need to understand how cryptos work under the hood.

It’s very important that you limit the costs incurred when making longterm investments in well-established assets like Bitcoin and altcoin assets. Although paying a 5-10% fee when buying or selling your Bitcoin might not seem like a huge deal at its current value, looking further down the line is vital, particularly if you believe in the future success of these digital currencies.

Many crypto experts believe Bitcoin could be worth $100,000 per coin someday. If you were to buy one Bitcoin for $100,000, you’d be paying between $5,000-$10,000 in fees alone.

It’s cutting out these schoolboy errors that can make the difference between a profitable and a losing financial investor, underlining why reputable trading platforms insist upon new traders practicing their investments with a demo account first using virtual funds, testing strategies and understanding the overall costs of trades, including the price spread, risk-free.

With all of the above in mind, let’s look at the most cost-effective options to trade cryptos and maximize potential returns.

Cryptocurrency Exchanges – What Do They Charge?

There are several potential fees to be mindful of when selecting a cryptocurrency exchange to carry out your trades. Some will charge a fee just to transfer fiat currency funds into your account, but most - luckily - don’t. Trading fees will be applicable to your crypto transaction, expressed as a percentage of the overall value of your acquisition. Once you’ve bought the digital currency you want, the safest thing to do is transfer your assets from the exchange to a secure, private crypto wallet.

Try and find an exchange that offers the smallest withdrawal fees, either as a flat fee or a percentage-based fee. It should be possible to find exchanges that will allow you to withdraw crypto assets free or for as little as $1, while withdrawal fees for fiat currencies can be more like $2-$3.

Trading Cryptos as a CFD

More cryptocurrencies are available as contracts for difference (CFDs) with trading platforms. This means that investors can merely speculate on the price of a crypto asset rising or falling, without having to worry about physically storing the asset. Crypto CFDs tend to offer cheaper market-trading fees than forex trading pairs, which is one reason why more forex traders are looking to speculate on cryptocurrencies cost-effectively and take advantage of the extreme volatility compared with the typically modest movements in the forex markets.

Using Peer-To-Peer Trading Platforms

There is a growing number of peer-to-peer trading platforms for cryptos like Bitcoin. Most of these platforms charge small flat fees whenever a transfer is made via their system. These fees tend to be around 1-2% of the total value of the crypto assets you wish to buy. However, the fee structure tends to lean towards those who own the assets and are providing the liquidity. They have the power to set their own commission fees, in addition to the platform's flat fee, so be mindful of this and try to find genuine sellers that aren’t out there to rip investors off.

Before you delve into any of the crypto trading methods discussed above, be sure you are experienced enough to interact with these platforms first and have a clear handle on the costs and security considerations of each platform before parting with your hard-earned cash.

 

Featured image: Pexels - https://pixabay.com/

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