Post ID: 2004
Trading cryptocurrencies is one of the most profitable way of earning bitcoins and other cryptocurrencies. Nevertheless, virtually all cryptocurrency trading platforms I have come across to charge a fee for using their platform to either buy or sell cryptocurrencies.
Most times, the fee structure of these trading platforms are divided into 2, namely: Maker and Taker fee. What is the difference?
One of the main difference between a cryptocurrency trading platform and cryptocurrency exchange platform is that trading platforms allow its user to specify how much they want to either buy or sell their crypto, while exchange platform do not have this feature.
Now when someone decide to sell their bitcoin or other cryptocurrency above the current exchange price or to buy below the current price, their request enter what is called order book. In this case, the Maker Fee is applied to that order.
Let’s use an example to clarify matters. In this example of ours, we will assume that the current price of bitcoin is $10,000.
Now at this point, if I assume that the price of bitcoin will fall, and so I placed an order that I want to buy 0.1 bitcoin (btc) when the price has fallen to $9,500. In this case, since my purchase order will be processed instantly, it will be recorded into the order book of the trading platform and the Maker Fee will be applied.
If I assume that the price of bitcoin will rise so I placed an order that I want to sell my 0.1 bitcoin (BTC) when the price has risen to $10,500, then my sell order will be recorded into the Order Book of the trading platform since my order will not be processed instantly, and the Maker Fee will be applied to my order when it is processed.
Now that you know maker fees are applied to orders that are recorded into the trading platform’s order book since it will not be processed instantly, Taker Fee is the opposite of Maker fee. Because unlike maker fee that is applied to orders that is not processed instantly, Taker Fee is applied to purchase and sell orders that are processed instantly.
From the example above, if I decide that I cannot want for the price of bitcoin to drop before I buy or for the price to rise before I sell so I made an order to either buy or sell my bitcoin at the current (trading) price which is $10,000 then, the taker fee will be applied to my order by the trading platform.
Why Separate the Fee Structure?
As you may have already know, the price of a cryptocurrency is determined by the supply and demand rule. That is, if there are more people seeking to sell their cryptocurrency and few people seeking to buy, then the price for that cryptocurrency will fall, whereas, if the case is reverse so that there are more people seeking to buy and few people are willing to sell, then the price will rise.
Now those whose orders are not processed instantly but is recorded against the order helps the trading platform regulate the price for they will have a record of those intending to buy and sell their cryptocurrency and for what price.
Those whose orders are processed instantly will help to regulate the price.
Hence, it is a general rule to have the Maker fee lower when compared to the Taker fee for orders that the maker fee is applied to have bring stability to regulate the price and thus price a measure of stability to the pricing.
When your purchase or sell order is not processed instantly but is recorded into the order book, then the Maker fee will be applied to that order.
If your purchase or sell order is processed instantly, then the Taker Fee will be applied to your order.