When it comes to choosing the right cryptocurrency exchange, you probably encountered these two terms in the fee schedule; Maker and Taker fee.
Although both of these fees are closely related, they often come at different rates, which makes you wonder even more about the difference.
The maker-taker model is used by exchanges to incentivize traders for a more sustainable trading attitude in terms of liquidity. Based on that, the system automatically charges a different fee to someone who takes liquidity from the market and those who add liquidity.
This probably didn’t clarify the issue for you. That’s why this article is here, in which we will explain the difference between maker and taker fees in crypto trading and also look at which cryptocurrency exchanges you will find the lowest maker-taker fees. Let’s dive in!
Who are Makers and Takers in the Market
In the world of cryptocurrency trading, makers and takers are two terms used to describe different types of traders in the market.
A maker is someone who places a limit order on the order book, meaning they are essentially making a market for others to trade against.
Whereas a taker is someone, who takes an existing order from the order book, meaning they are essentially “taking” liquidity from the market.
Makers are often seen as providing a valuable service to the market because their style of trading increases liquidity. That’s also why many cryptocurrency exchanges will offer lower fees for makers as an incentive to provide this liquidity.
On the other hand, takers are seen as removing liquidity from the market and disturbing the balance, and as such, they often need to pay a higher fee than makers.
However, being a maker has other added benefit. It can also eliminate the threat of loss from big market swings. That’s because when placing a market order, your order will be filled with the best offer at that moment. If the order book is empty, you might get filled at a ridiculous price.
What is Maker Fee in Crypto Trading
A maker fee is a fee that is charged to a trader who adds liquidity to the market by placing a limit order on the order book. Or, to be precise, the fee is charged once your order is filled, not by placing it.
Essentially, a maker fee is charged to traders who are willing to wait for their trades to be filled by someone else rather than taking an existing order from the order book.
For a better understanding, let’s take a look at an example.
How does a Maker Order Work
When you place a maker order, thus order with the “limit order” mode selected, your order will be placed in the order book, waiting to be filled.
An order book is a list of all open trades of a particular coin at a given price. You are essentially telling every market participant that you are willing to pay for a set quantity of coin or token a maximum price of… and that you are happy to wait for someone to meet you at or below that price.
Or if you are trading in the opposite direction, you are willing to sell your tokens for a minimum price of…
For instance, if BTC/USDT is currently trading at $26,000, you can place a limit order to buy BTC below the market price at $25,500. Your order to buy one bitcoin at $25,500 will be placed in the order book, waiting for someone to take it.
The market is set to always match the best offers. So, for instance, if someone places an order in the opposite direction at your price, it still might not get filled. Because the system will match them with the best offer available.
The price you are setting in the limit order is a maximum you are willing to pay or a minimum you are willing to sell your assets for.
What is a Taker Fee in Crypto Trading
On the other hand, a taker fee is charged to a trader who removes liquidity from the market by taking an existing order from the order book.
In other words, a taker fee is charged to a trader who wants to buy or sell their assets immediately at the current market price rather than waiting for someone to take their order as a maker.
Let’s take an example.
How does a Taker Order Work
A taker order is an order placed as a “market order.”
When you place a market order, it is immediately matched with one of the available offers in the order book.
Just like with maker orders, the system will match you with the best available offer at the given moment.
This is typically not an issue when trading a coin with a high trading volume, where thousands of transactions are filled every minute.
However, be careful with smaller coins and tokens. It may happen that the order book will empty out for a few seconds, and you could be matched with a really disadvantageous offer.
Why do Cryptocurrency Exchanges use the Maker-Taker Model?
Markets that experience high-frequency trading can sometimes suffer from reduced liquidity that distorts prices.
While this benefits short-term traders looking to make quick profits, it can harm long-term traders.
Exchanges use the maker-taker fee model to offset this undesirable behavior. Simply put, if you want to take right now, you have to pay for it.
In addition to this negative incentive, cryptocurrency exchanges use it as a way to generate additional revenue.
Because, in the end, there is no way to fight this behavior. If exchanges introduced a very unfair fee schedule, no one would trade there.
And daily traders are not scattered by a slight raise in fee, which lead to a simple but effective increase in revenue for exchanges.
What is the Average Maker-Taker Fee
The maker-taker fee can vary widely depending on the cryptocurrency exchange you are using and the specific market you are trading in. For instance, Binance has all BTC pairs completely without fees.
Typically, maker fees tend to be lower than taker fees to motivate traders to provide liquidity to the market. However, the offset is usually around 0.10%.
We could say that the average is moving at around 0.15% for the maker fee and 0.25% for the taker fee.
How High are Maker and taker Fees on Different Exchanges
However, knowing the average fee may not be particularly useful if the specific exchange you are using does not offer that average. Let’s look what are maker and taker fees on some of the biggest crypto exchanges.
|Exchange||Maker Fee||Taker Fee|
Please note that the table above presents the base rates for maker and taker fees. The rates that everyone will get once they sign up for an account. The vast majority of exchanges offer some kind of VIP program that will lower all your fees the more you trade.
How are Maker and Taker Fees Calculated
How maker and taker fees are calculated will vary depending on the type of contract you use.
This means that the formula will be a bit different depending on whether you are trading futures and other derivatives or trading on the spot market.
But standardly, both maker and taker fees are calculated as a percentage of the total trade volume for a particular order.
To illustrate how maker and taker fees are calculated, let’s take a look at an example.
Assuming you bought 1 BTC at a price of $25,000, the total trade value would be $25,000. If the taker fee is 0.2%, then the fee charged for the trade would be:
$25,000 x 0.002 = $50
So, in this case, the taker fee for the trade would be $50.
If the maker fee is 0.1% and assuming you placed a limit order that added liquidity to the order book and was later filled, the fee charged for the trade would be:
$25,000 x 0.001 = $25
So, in this case, the maker fee for the trade would be $25.
Maker-Taker Fee FAQ
Taker fees are typically higher than maker fees because takers are taking liquidity from the order book while makers are adding liquidity to the order book.
By taking liquidity, takers are essentially “jumping the queue” and getting their trades filled immediately, which can reduce liquidity and distorts prices.
Essentially all centralized exchanges, based on the order book system, use maker and taker fees.
Decentralized exchanges can’t use maker or taker fees, as there are orders filled against liquidity pools not filled by other traders.
In general, it’s difficult to completely avoid maker and taker fees, as they are a standard way of charging for trades.
However, many exchanges may lower fee rates for high-volume traders or users who hold their native exchange tokens. We’d recommend checking your exchange’s fee schedule; you might be pleasantly surprised.
Limit orders are typically maker orders, as they add liquidity to the order book. However, a limit order can sometimes also be considered a taker order if your limit order is filled immediately. But this depends on the fee schedule of your exchange.
Market orders are typically considered taker orders, as they immediately take liquidity from the order book by executing at the best available price.
The Maker-Taker fee model seems to be a common practice on cryptocurrency exchanges. They aim to reduce high-frequency trading to ensure there is always enough liquidity in the market.
Depending on your cryptocurrency exchange, taker fees might be a bit higher because, as a taker, you are taking the liquidity from the market. But it has been the practice in recent months that these fees are coming closer together and are equally high.
Because maker and taker fees are not the only fees you will have to pay during your trading career, you might also want to check out our comprehensive breakdown of crypto trading fees, which includes valuable tips to minimize them.