Cryptocurrency platforms are increasingly using the Maker and Taker model to charge transaction fees. It’s important to understand the difference between the two, as the cost of each fee for buying, trading, and selling can be different depending on the cryptocurrency trading platform you choose. But what are Maker and Taker fees? In this article, we explain the basics of Maker and Taker fees, when you should use them, and their pros and cons.
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What are Maker and Taker Fees?
Maker and Taker fees are a popular fee structure used by cryptocurrency exchanges and platforms to charge traders for adding or removing liquidity from an exchange. That is, exchanges can apply different fees or costs to incentivize traders who provide liquidity to an order book compared to traders who remove liquidity for a particular trading pair.
This type of fee system is different from the traditional fixed fee per trade system used by fiat-to-crypto exchanges or CFD providers such as eToro and Plus500. To better understand fees, we first need to explain the difference between Makers and Takers.
Key points:
Maker-taker is a fee model used by exchanges to incentivize traders.
The fee system charges two different fees to those who add liquidity to the market and those who remove liquidity.
Understanding the difference between Maker Fee and Maker Fee can help you lower your transaction fees.
Maker and Taker fees are how cryptocurrency exchanges make money.
What is the difference between Makers and Takers?
A Maker is someone who provides liquidity for a given trading pair (e.g. BTC/USDT) and adds market depth to the order book. In contrast, a Taker is someone who seeks to remove liquidity from the order book. How people conduct these activities is by using market or limit orders. A key difference between Makers and Takers is execution speed. In contrast to Taker orders, which are executed immediately, Maker orders to buy or sell cryptocurrency are not immediately executed on the market.
What are Maker Fees?
The Maker fee is a cost applied to orders executed on a trading platform for placing orders that add liquidity to the exchange. This involves placing an order on the market for another trader to execute. This is known as adding liquidity to the market. By placing an order for another person to execute, the trader is adding liquidity to the order book and will be charged a Maker fee when the other trader executes the order.
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How do Maker orders work?
Maker orders work by placing a "maker sell order" with a price higher than the highest buy order on the platform, or traders need to place a "buy order" with a price lower than the lowest sell order on the platform. By placing an instruction to sell at a higher price in the market, maker orders contribute to liquidity in the order book and will be charged a maker fee.
For example, if BTC/USDT is currently trading at $50,000, a trader would need to place a limit order to sell Bitcoin to USD above $50,000. If the order is not filled at the current price or matched by any order, by definition, this is adding liquidity to the order book.
What are the advantages and disadvantages of Maker orders?
On most exchanges, Maker fees are slightly lower than Taker fees to encourage traders on the platform to increase liquidity and market depth. Liquidity on a trading platform refers to the presence of market interest based on the number of active traders and general trading volume. Higher liquidity in the order book can provide lower spreads between bid and ask prices and allow traders to execute positions with minimal crypto slippage, which is ideal for individuals trading large positions. For more information, read this guide that explains spreads in cryptocurrencies.
The downside of Maker orders is that it can take time for buyers to complete their orders. Orders can sit in the order book and never get executed, especially if the trading pair has low volume or no willing buyers. Additionally, using limit orders can be error-prone, causing orders to be filled at the wrong price.
What are Taker Fees?
Taker fees are fees applied to orders executed on a trading platform for placing orders that remove liquidity from the exchange. This involves placing orders on the market to execute someone else's order immediately or as quickly as possible. This is known as bringing liquidity to the market. A Taker places a buy or sell order to execute available orders in the order book and pays the Taker fee once the order is executed.
How do taker orders work?
Maker orders work by placing a “market order” that is matched immediately in the order book for a specific trading pair. If there is not enough liquidity in the order book to fill the order, the order will be partially filled or rejected, depending on the exchange. Place a limit order that is matched immediately in the order book. The Taker will pay a slightly higher fee, which is called the Taker fee. The Taker fee is paid for the convenience and fast execution provided by the exchange and market maker.
What are the pros and cons of taker fees?
The benefit of using a taker order is that the order will be executed instantly on the exchange at the current market price. This means that traders can execute trades quickly without having to wait for other traders to fill their orders.
The downside of taking orders is that some exchanges charge higher fees. This is mainly due to the removal of liquidity from the exchange and the convenience of having your order matched instantly. In most cases, your order will be executed at a lower ask price (or pay a higher bid price) than when you placed your maker order.
in conclusion
To summarize what Maker and Taker fees are, traders who create orders to buy or sell assets to immediately fill other people's orders are called Takers. In contrast, traders who create pending or limit orders that wait for others to fill are market makers.
Market makers and takers complement each other in the cryptocurrency market, providing liquidity for customers to buy and sell digital currencies. Maker orders ensure that cryptocurrency exchanges have liquidity, while Taker orders ensure that orders continue to flow.
We believe that traders should always use limit orders when placing trades to receive slightly lower maker fees. Traders who wish to execute trades immediately at the current price should use market orders, however, will pay slightly higher fees depending on the exchange and will not be eligible for any fee rebates.