How Crypto Exchanges Make Money: Complete Fee Structure Explained.
Understanding Crypto Exchange Revenue Models
The question of how crypto exchanges make money reveals a multi-layered fee structure extending beyond simple trading commissions. Major platforms like Binance, Coinbase, and Kraken generate revenue through trading fees, spread markups, withdrawal charges, funding rates, liquidation fees, and ancillary services.
This analysis examines each revenue mechanism with real cost examples to illustrate the total expense structures users encounter when trading cryptocurrency.
For foundational cryptocurrency concepts, refer to cryptocurrency trading basics.
Trading Fees: Primary Revenue Source
Maker vs Taker Fee Structure
Most exchanges employ two-tier systems, distinguishing between liquidity providers and consumers.
Maker orders:
- Limit orders add liquidity to order books.
- Placed at prices not immediately matched
- Lower fees incentivise liquidity provision.
Taker orders:
- Market orders remove liquidity.
- Execute immediately at current prices.
- Higher fees reflect liquidity consumption.
Major exchange fee comparison:
| Exchange | Maker Fee | Taker Fee |
| Binance | 0.10% | 0.10% |
| Coinbase | 0.40% | 0.60% |
| Kraken | 0.16% | 0.26% |
| Gemini | 0.20% | 0.40% |
Percentages apply to the total transaction value. On $1,000 trades, 0.10% equals $1. On $100,000 volume, 0.10% equals $100.
Volume-Based Tier Discounts
Exchanges implement tiered structures that reduce fees as 30-day trading volume increases.
Binance tier example:
- Under $50K monthly: 0.10% maker/taker
- $50K-$500K monthly: 0.09%/0.10%
- Over $3B monthly: 0.02%/0.04%
High-volume traders access significantly lower per-trade costs. Retail users typically remain at standard rates.
Real Cost Comparison: $10,000 Trade
Purchasing $10,000 Bitcoin across platforms:
Binance (0.10% taker):
- Fee: $10
- BTC received: $9,990 value
Coinbase (0.60% taker):
- Fee: $60
- BTC received: $9,940 value
Kraken (0.26% taker):
- Fee: $26
- BTC received: $9,974 value
The $50 difference between Binance and Coinbase on a single trade demonstrates the impact of their fee structures on the value received.
Hidden Revenue: Spread Markup
Understanding Bid-Ask Spreads
Beyond explicit fees, exchanges generate revenue through spread markup—the difference between displayed buy and sell prices.
Spread components:
Natural market spread:
- The gap between the best available purchase price and the best available selling price
- Exists due to liquidity dynamics
Exchange markup:
- The platform adds an additional spread.
- Functions as an undisclosed fee
Bitcoin trading example:
Market order book:
- Best bid: $65,000
- Best ask: $65,010
- Natural spread: $10 (0.015%)
Exchange display to users:
- Buy price: $65,025
- Sell price: $64,995
- User spread: $30 (0.046%)
Exchange profit:
- Markup: $20 per Bitcoin
- On 100 BTC daily volume: $2,000 additional revenue
This markup supplements stated trading commissions without separate disclosure.
Spread Variation by Pair Liquidity
Markups vary significantly based on trading pair liquidity.
Typical spread markups:
| Pair Type | Natural Spread | Exchange Markup | Total User Spread |
| BTC/USD | 0.01-0.02% | 0.02-0.05% | 0.03-0.07% |
| ETH/USD | 0.02-0.03% | 0.03-0.08% | 0.05-0.11% |
| Altcoins | 0.10-0.30% | 0.20-0.50% | 0.30-0.80% |
| Obscure pairs | 0.50-2.00% | 1.00-3.00% | 1.50-5.00% |
Lower liquidity pairs allow larger markups. A 3% spread on obscure altcoin trades costs $300 on $10,000 positions—far exceeding explicit fees.
For related cryptocurrency topics, see crypto security strategies.
Withdrawal Fees: Network Costs vs Markups
Blockchain Fees vs Exchange Charges
Withdrawals involve actual blockchain transaction costs plus exchange service fees.
Cost breakdown:
Actual network fees:
- Bitcoin: $1-5 typically
- Ethereum: $2-15 depending on congestion
- Solana: $0.01-0.05
Exchange withdrawal fees:
| Exchange | BTC Fee | ETH Fee | Network Cost | Markup |
| Binance | ~$32 | ~$8 | $3 BTC, $5 ETH | ~$29 BTC, ~$3 ETH |
| Coinbase | ~$26 | ~$9 | $3 BTC, $5 ETH | ~$23 BTC, ~$4 ETH |
| Kraken | ~$10 | ~$6 | $3 BTC, $5 ETH | ~$7 BTC, ~$1 ETH |
Exchanges charge significantly above actual network costs.
Impact example:
Withdrawing $500 Bitcoin:
- Coinbase fee: $26 (5.2% of withdrawal)
- Actual network cost: ~$3 (0.6%)
- Exchange profit: $23 (4.6%)
Users withdrawing smaller amounts pay disproportionately high percentages.
Aggregate Withdrawal Revenue
With millions of users conducting withdrawals, aggregate revenue becomes substantial when examining how crypto exchanges make money.
Hypothetical calculation:
- 10 million monthly withdrawals
- Average markup: $15 per withdrawal
- Monthly revenue: $150 million
This excludes trading fees entirely, representing a separate significant income.
Futures and Derivatives Revenue
Funding Rates on Perpetual Contracts
Perpetual futures include periodic funding rate payments between long and short holders. Exchanges collect fees on transfers.
Funding rate mechanism:
When contract prices exceed spot:
- Long positions pay shorts.
- Exchange charges 0.03-0.10% on transfers.
- Occurs every 8 hours, typically
Example:
$100,000 long position:
- Funding rate: 0.05%
- Funding payment: $50
- Exchange fee: $2.50
Across billions in open interest, thrice-daily funding fees generate substantial revenue.
Liquidation Fees
Leveraged positions that reach liquidation thresholds incur automatic closure and fees.
Liquidation structure:
- Insurance fund contribution
- Liquidation penalty: 0.50-3.00% of position value
Example:
$10,000 collateral at 10× leverage:
- Position: $100,000
- Remaining after loss: $1,500
- Liquidation fee (1.5%): $1,500
- Trader receives: $0
Exchanges profit from liquidations. High volatility periods generate significant revenue spikes.
For aspects of trading psychology, review the fundamentals.
Additional Revenue Streams
Token Listing Fees
Cryptocurrency projects pay substantial fees for token listings.
Reported ranges:
- Major exchanges: $1-5 million
- Mid-tier: $50K-$500K
- Smaller platforms: $5K-$50K
If major exchanges list 50 tokens annually at $500K average:
- Annual listing revenue: $25 million
Staking Services
Exchanges offering staking retain portions of rewards as service fees.
Typical arrangement:
- Network reward: 5.0% APY
- Exchange advertises: 4.0% APY.
- Exchange retains: 1.0% (20% of rewards)
With $1 billion staked:
- Annual revenue: $10 million
Premium Services
Paid features generate subscription revenue.
Common offerings:
- Advanced tools: $20-100 monthly
- Market data: $50-500 monthly
- API access: $100-1,000 monthly
Hundreds of thousands of subscribers generate meaningful supplemental income.
Total Cost Example: $100,000 Trading Scenario
Monthly Activity Analysis
Trader with $100,000 conducting typical activity:
Parameters:
- 10 trades monthly ($10,000 average)
- Mix maker/taker orders.
- 2 withdrawals monthly
- Using Coinbase fees
Cost breakdown:
Trading fees:
- Taker (7 trades): $10,000 × 0.60% × 7 = $420
- Maker (3 trades): $10,000 × 0.40% × 3 = $120
- Total: $540
Spread costs:
- 0.05% average markup
- $10,000 × 0.05% × 10 = $50
Withdrawal fees:
- 2 × $26 = $52
Monthly total: $642
Annual: $7,704 (7.7% of capital)
Annual: $7,704 (7.7% of capital)
Platform Comparison
Same scenario on Binance:
Fees:
- Trading: $100
- Spreads: $50
- Withdrawals: $64
- Monthly: $214
- Annual: $2,568
Savings vs Coinbase: $5,136 annually
Exchange selection significantly impacts long-term costs.
Frequently Asked Questions
How do crypto exchanges make most of their money?
Trading fees account for most exchanges’ primary revenue. Fees typically range from 0.10% to 0.60% per transaction, charged on every trade. High-volume exchanges processing billions daily generate substantial income from these percentages. Binance reportedly generates over $1 billion quarterly from trading fees during peak activity.
Do exchanges charge fees on both buying and selling?
Yes. Exchanges charge fees on purchase and sale transactions separately. Round-trip costs total both fees combined. At 0.10% each direction, the round-trip totals 0.20% before price movement. Trades must profit beyond fee thresholds to generate net gains.
What are the hidden fees on crypto exchanges?
Spread markup represents primary hidden fees. Exchanges add markup beyond natural market spreads, functioning as undisclosed commissions. Conversion fees between cryptocurrencies, inactivity fees on dormant accounts, and premium pricing for instant transactions are also less visible charges.
Why do withdrawal fees vary between exchanges?
Exchanges set withdrawal fees based on business strategy rather than actual costs. Some use low withdrawal fees competitively while charging higher trading fees. Others maintain high withdrawal fees, which encourage users to keep their assets on the platform. Actual network costs remain consistent, so differences reflect pricing decisions.
How much do exchanges earn from liquidations?
Liquidation fees typically range from 0.50% to 3.00% of the liquidated position value. During periods of high volatility that trigger mass liquidations, exchanges generate millions of dollars within hours. The May 2021 crash reportedly resulted in over $10 billion in liquidations, potentially generating $50-300 million in fees across major exchanges in one day.
Are maker fees always lower than taker fees?
Not always, though commonly. Most exchanges incentivise liquidity provision with lower maker fees. However, some charge identical rates, particularly at retail tiers. Binance charges 0.10% for both at the standard level. VIP tiers may offer zero maker fees while maintaining taker fees.
Conclusion: Multi-Layered Fee Architecture
Understanding how crypto exchanges make money reveals sophisticated fee structures extending beyond trading commissions. Major platforms generate revenue through trading fees (0.10-0.60%), spread markups (0.02-0.50%), withdrawal charges ($10-50), futures funding rates (0.03% every 8 hours), liquidation penalties (0.50-3.00%), listing fees ($50K-$5M), staking cuts (10-20%), and various services.
Active traders face cumulative costs reaching 5-10% of capital annually. A $100,000 portfolio might incur $5,000-$10,000 in fees yearly across these mechanisms.
Key insights:
- Trading fees represent 60-80% of exchange revenue.
- Spread markups function as hidden fees, adding 0.02-0.50% per trade.
- Withdrawal fees substantially exceed blockchain costs.
- Derivatives generate additional income via funding and liquidations.
- Fee structures vary dramatically across platforms.
Exchange selection based on a comprehensive comparison rather than single factors becomes important for cost management. Multi-layered models demonstrate sophisticated monetisation, explaining how crypto exchanges maintain profitability across market conditions.
Disclaimer
Educational Analysis
This examination serves educational purposes and should not be interpreted as financial guidance or platform recommendations. Fee information derives from publicly accessible exchange data at publication time and remains subject to modification.
Platform Variability
Fee structures and services vary across exchanges and jurisdictions. This analysis presents general patterns rather than comprehensive coverage. Individual circumstances and trading patterns significantly affect actual costs.
Independent Verification
Readers should independently verify current fee schedules through exchange websites before conducting transactions. Stated percentages serve as illustrative examples based on typical retail tiers and may not reflect current rates.
Consulting financial professionals on specific situations and conducting independent research into the reputations of platforms remains advisable before depositing funds on any exchange.
