Many retail investors get bogged down by the term “margin“. It sounds like an intensely speculative trade. Since it is speculative, you may think you would lose more than you earn. But, you are mistaken.
You can avoid being misguided by understanding how crypto margin trading fees work at exchanges. It will also answer the questions like: Is there any way out to reduce the overall fee? Can the bonus offered by a few crypto exchanges, i.e., the Bybit bonus, help make any difference? Let’s find out.
Types of Crypto Exchange Fees
- Trading Fees
It is the primary source of revenue for crypto exchanges. You need to pay this fee for both fiat-crypto trading and crypto-crypto trading.
- Deposit/Withdrawal Fees
Some exchanges charge fees for deposits and withdrawals. Deposit costs differ depending on the type of deposit, but since exchanges prefer to encourage users to fund their accounts, deposit fees are less standard than withdrawal fees. Many exchanges restrict payments to all blockchain transaction costs for cryptocurrency withdrawals (usually a flat fee regardless of the amount withdrawn). But, some can charge an extra fee, depending on your country or the type of withdrawal (crypto vs. fiat)
- Interest/Borrowing/Liquidation Fees
Some exchanges may offer crypto margin traders the ability to borrow additional funds to increase position and create leverage. These exchanges usually charge extra fees based on the amount borrowed on margin along with an interest rate determined by the availability of fund supply. Furthermore, if your position is liquidated, you will have to pay an additional fee.
- Volume Discount and Market Makers: ‘Market Makers’ get low exchange fees from exchanges to incentivize exchange liquidity.
- Exchange Token Discounts: An overall strategy is to discount trading rates for users who purchase their cryptocurrency tokens. Many exchanges have implemented this method to help promote investment in their tokens. These exchanges decided to reduce the volume of the discount per year until it was wholly rolled out after four to five years.
- Bonus: A few crypto exchanges also offer bonus coupons, for example, Bybit bonus. However, it will depend on whether your selected exchange provides it or not.
How Do You Trade on Margin?
You are first required to position a request with your broker to open a margin account to exchange with a margin account. It allows you to give the broker cash a certain sum of money upfront, which is considered the minimum margin. Squaring off will help the broker raise some profits if the dealer loses the bet and struggles to recover the money.
What Is A Margin?
Margin is a security deposit required by your broker when you reach a trading position. It refers to the futures and CFD areas. Such protection is often needed in the options market if you function as a supplier of options to another or sell short stocks.
Margin, Not the Fee!
A margin shall not be regarded as a fee, nor shall it constitute part of the expense of a transaction. Instead, it is the deposit necessary to open a position in a leveraged product such as a CFDD (Contract for Difference). This part of equity acts as a security deposit.
If the margin, i.e., the security deposit on the CFD account, is too low, it is impossible to open the position at all or not at the desired amount.
However, in this manner, the broker gets himself protected from paying for the losses you may incur. The margin often fits the trader as a sort of self-protection, as it means that he does not take to himself and never fears being unable to handle it.
The margin is also an essential factor in leveraging products to protect brokers and traders against unlimited losses.
Initial Margin & Maintenance Margin
To open a position or when an order is put on the trading account, a margin must be available: it’s known as the initial margin. It can be used as a down payment, so to speak; it reflects the percentage of a position’s selling price that the trader’s own money must protect.
In contrast, the Maintenance Margin (also referred to as the Holding Margin or Stop Out Margin) is the minimum balance available to the investor in his trading account as soon as he opens the position.
What If Minimum Balance Is Not Met?
If this minimum balance is not met, the trader must either add more money, or the broker immediately continues to close the positions. It begins with the position that fails the most. Positions are closed until the maintenance margin is available in the trading account to hold the remaining positions open. The reason for this is to stop the loss of more money by traders than they have in their trading account.
To Sum Up
All in all, always check your chosen exchange’s fee structure and consider any discount available for volume and usage calculation.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.