In whatever you have invested, the strategy of “buy and hold” in the long term is the most correct. This applies to cryptocurrencies. It is important to understand how this investment vehicle, because the only way to figure out how to reduce costs in the trade — either by reducing trading volume, or due to the peculiarities of the exchange.
The costs of trading
Any trading is worth something, for example, to Deposit funds into Coinbase credit card, you need to pay 4%, and GDAX takes to 0.3% per trade order.
In addition, there is a spread between buying and selling, that is, neither the buyer nor the seller do not receive the market price, which is usually publicly announce — if you buy asset, the buyer usually pays a little more than the average price, and the seller gets a little less.
Also, in trading, you affect the market, and it can move against you. For example, if you try to sell a large quantity of some asset, its value starts to fall, and Vice versa. Every time trading, we become a part of this process, and the reason for market movement can be even a small order. And, finally, different trading strategies may result in different tax payments.
The Commission and spread
In the end, the more you trade, the more you lose on commissions and spreads. The Commission is usually listed on the stock exchange in the relevant section, and environments — is the difference between the average value of the selected crypto-currencies and the price paid by the buyer.
Usually the spread is 0.2−1.5%, but the specific value depends on the chosen currency pair and changes with time. Usually a pair that more trades, have a more narrow spread, but also play the role of other factors. On the cryptocurrency market spreads gradually reduced, last year they were much higher than now.
For example if you will trade on GDAX every month for five years, despite relatively low rates of this exchange, you will spend an incredible 96% of his capital on a fee. At the same time, if you did one transaction you would have paid just 1.6%.
Imagine that in five years the bitcoin has risen by 20%. This means that, in the case that you will make transaction a month, your losses will amount to 76%, but if bought and held, would have received the income at 18.4%. The Commission greatly influence yield, and this is the more noticeable, the lower the profitability of cryptocurrency.
It is possible to somewhat reduce the fee by using limit orders, but they do not guarantee that the order will be executed depends on market movement. And if you use, for example, Coinbase, then the total amount of the payments may be much higher, up to 4% if pay by credit card, and even in a period of high volatility. Of course, it is also important to the currency pair you trade.
There is exchange with a lower Commission, for example, Kraken, Binance and CEX.io. Remember that the cost of the surgery is only one option; don’t forget to rate the ease-of-use and safety, because in case of breaking of the stock exchange its low Commission will be poor consolation. In addition, this is an area where it is useful from time to time to compare the conditions, because the commissions are constantly changing.
The relatively high costs of trading cryptocurrency
Today the costs of trading scriptactive assets much higher than when dealing with popular securities. It is normal for a new market, and commissions continue to decline, however, often transactions can cost as much that will cover any return. The best time to buy and settle down — all the other strategies are much more costly.
Don’t forget to consider the Commission and trade as possible — and then your income will be something.
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