Crypto

Can you trust free crypto exchanges?

If you are a crypto trader, you will probably know how frustrating transaction fees can be. Performing sales, purchases, trades, and many other functions on a crypto exchange often comes with a fee, with different platforms charging different rates. But now there are crypto exchanges that claim to charge no trading fees. So how is this possible? Can you really trust a free crypto exchange, or should you stay away?


Typical Crypto Exchange Fees

We have already looked different types of crypto fees in detail, but we’ll quickly go over the main fees here before we get into the dynamics of free trades.

The most common type of FX fee pattern is known as a maker-taker. On an exchange, you have liquidity makers and liquidity takers. If you provide liquidity to an exchange, you are a maker, and if you withdraw it, you are a taker. You may see the terms “maker order” and “taker order” on your chosen crypto exchange, which indicates whether the trade provides or subtracts liquidity.

In short, crypto exchanges love liquidity. This is how they perform accurate technical analysis, stabilize asset prices and stay in business. This is why some exchanges charge maker fees that are lower than taker fees. For example, FTX charges a 0.02% maker fee, while the taker fee is 0.07%. Some crypto exchanges charge the same maker and taker fees, such as Binance, Bittrex, and Huobi.

But some exchanges use an allocation fee model. As the name suggests, spread fees come from a spread, the difference between the actual price of a digital asset and its selling price. Like maker-taker fees, spread fees vary depending on the platform you use. For example, eToro charges a 0.75% spread fee instead of maker and taker fees. Some exchanges even charge maker, taker, and spread fees, like River and Swyftx.

Exchanges may charge various other fees, including deposit and withdrawal fees. Most crypto exchanges do not charge deposit fees, but withdrawal fees are more common.

See our list of the best crypto exchanges with the lowest fees to find an affordable platform you can use for your crypto journey.

However, some exchanges do not charge maker, taker or spread fees. Can such exchanges really be trusted or are they hidden scams?

Can free exchanges be trusted?

It is important to note that when an exchange claims to be free, you should still be wary. Most crypto exchanges have fees, often for a good reason, so it’s wise to take a moment to check out any fees before signing up for a free crypto exchange.

Some exchanges may even use misleading language to present themselves as free when there are certain ways to make money from you.

Take Robinhood, for example. This company offers users the ability to trade and invest with different types of currencies, from US Dollars to Bitcoin. Robinhood claims to charge no maker, taker, or spread fees for crypto transactions. Sounds good, but there are underlying pitfalls. What you might not know is that Robinhood charges a higher price for buying assets than exchanges that charge fees. This way, the exchange can skim a profit on every crypto purchase.

On top of that, Robinhood was accused by the SEC in 2020 of using misleading language about how it generates revenue. The The SEC said that Robinhood had made “misleading statements and omissions in customer communications, including on its website’s FAQ pages, about its biggest source of income when describing how it made money”.

In its investigation, the SEC found that Robinhood claimed to be commission-free but made a profit behind the scenes through its “unusually high payment for order debits”. The SEC also found Robinhood to claim that its “execution quality matches or beats that of its competitors.”

While Robinhood is definitely not a scam, its reliability has been questioned.

The same goes for some other exchanges like BlockFi. While BlockFi may claim not to charge any maker, taker, or spread fees, it will charge for withdrawals. If you rarely make withdrawals or if the withdrawals are relatively small, this shouldn’t be too much of a problem. But if you make large or regular withdrawals, these fees add up quickly over time.

However, these exchanges are not necessarily untrustworthy. Robinhood makes its profit modes clear to users, and BlockFi doesn’t keep its withdrawal fees secret. Rather, it’s how you interpret marketing language that matters. If you hear that a crypto exchange doesn’t charge any fees, it’s more than likely that the platform has other legitimate methods of generating revenue, whether it’s in the form of other types of fees, rebates or similar.

Of course, there are crypto exchanges that are a scam. Some claim to charge no fees at all levels to lure victims. Various illicit exchanges have been discovered in the past, such as QuadrigaCX. This Bitcoin exchange scammed unknowing users out of $200 million in crypto, which has still not been recovered, as former QuadrigaCX CEO Gerald Cotten died suddenly in 2018. Investigators found that Cotten used investments in his business like a personal slush fund, and crypto and funds are still in short supply.

Unfortunately, crime is rampant in the crypto industry, with malicious actors looking to capitalize on unknowing asset holders and investors. This is unlikely to change anytime soon, so you should be vigilant when choosing a crypto exchange.

But it’s not just a question of costs – many factors determine if a trade suits you. You should also consider what security features an exchange offers and whether the exchange itself has a good reputation overall. Even big exchanges like Coinbase are known for dealing with illicit activities in the pasttherefore, it is best to know the track record of the exchange you have chosen to determine if you can trust it with your money.

Zero trading fees does not equal zero fees

Although the allure of no trading fees can be very tempting, it is important to keep in mind that this does not necessarily indicate a completely free crypto exchange. There are several other ways an exchange can profit from your money, so it’s always best to check a given exchange’s fee schedule, as well as its other sources of income, to make sure you’re not victim of a scam.

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