Every good trader knows that time is money, but maker-taker fees give this classic adage a whole new meaning.
Despite their relatively new inception, as maker-taker fees were only introduced in 1997, these payments (similar to rebates) have taken off in the financial industry, with major markets and firms using them regularly. This is because they not only provide some pretty lucrative incentives for traders, but also present high-frequency exchanges with passive income as well.
However, the practice isn’t without its controversy, as some believe that these payment systems obscure the actual price of assets, create false liquidity, or allow exchanges to exploit the system by adjusting asset prices to earn the rebates. But, as a bitcoin novice, you may be scratching your head; wondering what any of this has to do with you. Well, as Bitcoin and other cryptocurrencies become increasingly popular, the market begins to develop habits (and fees) that were once only seen in traditional asset classes. So, you’ll want to learn how to make these fees and rebates work in your favor. At present, there are a number of cryptocurrencies exchange platforms like Bitvavo.com that deal transparently with Maker-Taker fees, allowing all traders to profit from the type of trading that they enjoy most.
What is a Maker-Taker Fee?
In short, a maker is anyone that is trading in such a way that it brings liquidity to a market. Trade orders that aren’t carried out immediately, but are still created– show that there is propensity to buy or sell a given asset. Traders that create these types of orders get to don the term Maker because they are “making the market”. When talking about Maker Fees, these particular traders are offered a rebate on the transactions that they make, paying lower fees than others. Makers are oftentimes firms or exchanges that deal in high-frequency trading. For example, a maker would create an order calling for 500 Bitcoin shares to be sold once it hits $50k, meaning that those shares are ready for buying when or if Bitcoin hits its price point.
A quick word on liquidity…
Liquidity is just a term describing how quickly any given asset can be exchanged for another asset. Like Bitcoin to USD. A large part of market liquidity is the relative ease an asset has to be bought or sold at stable prices (e.g. a high demand, matched with a large supply). This is generally measured by assessing the gap between how much a buyer is willing to pay for an asset, and what amount a seller is willing to accept. The larger the gap between the two, the more illiquid the market is.
A Taker, on the other hand is the trader that is charged a fee for absorbing liquidity, or “taking” it. Most takers are also large investment firms that deal with huge blocks of assets, instead focusing their business on high-volume trading. These high-volume trades are performed immediately, thus taking up market liquidity and incurring higher fees. Either buying or selling the asset, but moving them in great sweeps– making it more difficult to exchange individual assets for others. Sticking to the above example, a taker would be anyone who instantly buys a share (or all 500) of BTC when the market hits the sellers price point.
While there is currently quite a bit of contention as to whether these maker-taker fees are an honest practice, they are legal, and useful. Particularly in markets like crypto, as many of the bigger firms stand to profit from moving either many trading orders per day (frequency), or creating a huge amount of orders at one time (volume). These fees were originally created in order to provide incentives to those traders that facilitate market liquidity– or in other words, make trading any one asset easier for everyone.
As you can see these fees provide an incentive for exchanges and other trading firms who facilitate them (both maker and taker orders). Which encourages exchanges to vie for market liquidity and promote all types of trading. This is because the taker fees are often higher than the maker rebates– with the exchange or firm keeping the excess.
Why They’re Important for Bitcoin
Unless you are dealing directly with a peer-to-peer network, chances are the exchange you deal with will trade based on orders. As in, many traders will come to their exchange, asking to buy bitcoin when the price reaches a certain limit. The exchange will tally up these orders and only execute them should that ordered price hit. Which creates a guaranteed demand, producing liquidity, and situating that exchange firmly in the “maker” department.
For some exchanges, despite them holding the orders, they consider the investors to be the makers, charging the much smaller maker fees to investors who are willing to wait. Then the exchange takes the difference between what is paid by anyone who sells their bitcoin at the given price (takers) and gives the rebates promised to the individual investors (makers), absorbing the difference and creating profit for the exchange itself. Which means that other avenues for exchanges to profit (through trading fees, account fees, transaction fees, etc) are charged at considerably lower rates. Saving traders money.
Platforms that use maker-taker fees not only make their profit in this way, but they also enjoy the benefit of being a trading hub that deals in high-liquidity, often earning them more customers as a result. So, while maker-taker fees can be a bit confusing, as well as a little contentious, they are a classic part of investing that every trader should familiarize themselves with– ensuring they make the best choices to invest every time.