How many markets does it cover?
I focused right now on BTC/USD. CFD sites of course offer a lot more products/contracts which can be traded and they have different fees
Topic: Fee comparison trading Bitcoin on CFD sites vs Spot-Margin vs. Futures exchanges (Read 948 times)
March 22, 2016, 04:37:40 AM
I focused right now on BTC/USD. CFD sites of course offer a lot more products/contracts which can be traded and they have different fees
March 22, 2016, 04:01:56 AM
How many markets does it cover?
March 22, 2016, 03:46:05 AM
Web version: http://www.bitcoinfuturesguide.com/bitcoin-blog/the-bid-ask-spread-margin-interest-as-hidden-fees-comparison-of-cfd-sites-vs-spot-margin-exchanges-vs-bitcoin-futures-sites
Sign up for two low-fee bitcoin futures exchanges at :
CryptoFacilities (where you get a $10 bonus when you sign up, verify, and make your first trade) and
BitMEX (where you get a 10% discount on fees)
FIRST FOCUS: BID-ASK SPREAD
In any trading environment, the bid-ask spread is an important concept that active traders need to understand in order to mind their PNL. It is an especially important issue for CFD Sites, many of which are important in bitcoin as a way of using cryptocurrency to speculate on FX, Stocks, and even crypto itself!
CFD sites (bucketshops, read more here about what that means) and futures exchanges (with orderbooks) alike are affected with a non-zero spread between the price you can buy at immediately vs. the price you can sell at immediately.
CFD sites will often advertise as being "no fee", but really when they are maintaining a spread and offering you the liquidity, that difference between what you can immediately buy and sell for (the spread) is in fact a fee by a different name.
Let's look at a few examples and run down how they work. SimpleFX above shows a $1 spread between its bid and offer that you can enter position for on BTCUSD: Buy at 420.26 , Sell at 419.26. That means if you were to buy and sell right after each other, you would lose 0.23% on the nominal price. That means if you were at max 25x leverage that SimpleFX offers for BTCUSD, you would lose 5.75% of your margin right at the entry of the position. This is, in effect, just a fee for entering the position.
Here's 1Broker, another CFD provider, and the spread they offer on BTCUSD:
This is slightly more competitive than SimpleFX, as their spread is $0.80, or 0.1924%. Meaning at their max leverage for BTCUSD at 5x you would open instantly at a 1% loss on your initial margin that you put down.
Finally, here's WhaleClubCo spread which is the least competitive of the bunch:
On this site the spread varies, but at this time it's about $2. This is a 0.48% spread, and at their max leverage of 10x it means you open your position with a 5% loss right away.
The three examples above are for CFD sites which offer trading of BTCUSD. Let's quickly look at the bid-ask spread of some actual futures and spot exchanges which use an orderbook and have customers trading against each other, not the CFD trading against the customer.
Here's Bitfinex from their orderbook, note that the spread is tiny... only $0.10, which is 0.024%. At max leverage of 3.3x the spread ends up costing the trader 0.08%. However, on Bitfinex there's also a 0.2% transaction fee for taker and a sliding scale on maker. If you are on the highest fee structure then you end up paying 0.2% + 0.2% + 0.08% = 0.48% on the trade:
And here's BitMEX futures exchange orderbook with bid ask spread:
The spread on this contract, which has an orderbook that has bids and offers from clients, marketmakers, etc., is $0.38 or 0.091% notionally. At the max 100x leverage this ends up being a 9.1% fee from the initial margin you put down.
All the above examples, from CFD sites to Spot exchange to Futures exchange, illustrate the importance of NOT DOING MARKET ORDERS. Focus on setting a limit order that others can fill on orderbook exchanges, or the CFD site will have the price move up to fill you. Not only do you get a better entry price and avoid the sting of the spread (especially on orderbook exchanges, not so much on CFD), but it is a good way to regulate your own behavior and instill some discipline.
Lesson 1: Focus on making limit orders to reduce the sting of the bid-ask spread.
SECOND CONSIDERATION: MARGIN & LEVERAGE INTEREST FEES
Now that you realize that bid-ask spread is a fee for CFD sites, I will next discuss the issue of Interest Rate charges on Margin (leverage) accessed for positions in trading. CFD sites will always charge you for leverage. It varies by exchange and also by product within each exchange.
Starting again with SimpleFX fee on the BTC/USD pair:
This -$74 swap fee is taken from a position size of 1, which currently has a trade value of $42,065, which is a 0.176% fee. So every day you hold the position overnight you're paying about 0.18% nominally. Add in 25x leverage and you're paying 4.5% overnight off your initial margin, and that's after you already took a 5.75% hit entering the position.
Next, at 1Broker you have differing margin rates for long and short for BTC/USD:
So every night on 1Broker you're paying 0.15% on a long and 0.1% on a short position, even if it's just 1x. If you're at max 5x, that's a 0.75% or 0.5% fee every night on your initial margin, in addition to the 1% hit on initial margin you take.
And finally, let's look at the third CFD site, Whale Club Co, to see their fee structure:
Once again they are a little bit on the higher side, with 0.2% charged on any leverage used. That means at max 10x you're paying 2% overnight charges on your position in addition to the 5% loss you would take immediately on entry due to the bid-ask as discussed above.
So we see that the CFD sites are quite cumbersome with fees, between the bid-ask spread and the overnight fees for margin, it can get quite costly trading Bitcoin on them when there are cheaper alternatives.
Bitfinex, the top bitcoin spot-margin exchange, has a customer-based lending system. So instead of borrowing from the exchange and paying the financing charges like that, instead you are paying whatever the market rate is for the funds that other exchange customers are offering.
So not only is the Bitfinex bid-ask fee is better than CFD sites, the margin fees for holding the position are also better. If you are borrowing USD to long BTCUSD, you will be paying 0.025% roughly per day at current market rates. At 3.3x that's 0.08% of initial margin.
Lesson 2: If you are using CFD sites or Spot Margin Exchanges, focus on reducing your leverage to avoid cumbersome margin fees on the amount you borrow.
Finally, let's look at the margin interest financing fees on Bitcoin futures exchanges for holding overnight positions:
That's right -- no matter where you trade bitcoin futures at the reputable places we review on our site: OKCoin, BitMEX , and CryptoFacilities -- you will be paying NO interest charges regardless of whether you are using 2x, 10x, 20x, or 100x leverage!
Lesson 3: Use Bitcoin Futures contracts as the most efficient and cheap way to access leverage. When CFD sites offer you leverage they will charge you a high fee, and when Spot Margin sites offer you leverage, you will be paying a high fee to counterparties borrow the currency on margin. Bitcoin Futures, on the other hand, allow you to access 10x, 20x, even 100x with NO INTEREST RATE CHARGES WHATSOEVER!
At the web link you will find a full summary table that outlines the fee differences and advantages of trading bitcoin using CFD sites or spot-margin exchanges or futures sites.
The numbers speak for themselves. When it comes to speculating in Bitcoin price, BTCUSD, BTCCNY, the best choice is bitcoin futures exchanges. You will pay a higher spread fee on CFD sites, and higher leverage fees with Spot-Margin exchanges. To avoid fees on leverage trading, use your bitcoin to speculate on changes in bitcoin price in futures markets instead. If they are liquid contracts, the bid-ask spread will also be tighter. Between these two factors, trading bitcoin futures is a major discount to alternative exchanges for speculation and hedging.
Sign up for two low-fee bitcoin futures exchanges at :
CryptoFacilities (where you get a $10 bonus when you sign up, verify, and make your first trade) and
BitMEX (where you get a 10% discount on fees)
FIRST FOCUS: BID-ASK SPREAD
In any trading environment, the bid-ask spread is an important concept that active traders need to understand in order to mind their PNL. It is an especially important issue for CFD Sites, many of which are important in bitcoin as a way of using cryptocurrency to speculate on FX, Stocks, and even crypto itself!
CFD sites (bucketshops, read more here about what that means) and futures exchanges (with orderbooks) alike are affected with a non-zero spread between the price you can buy at immediately vs. the price you can sell at immediately.
CFD sites will often advertise as being "no fee", but really when they are maintaining a spread and offering you the liquidity, that difference between what you can immediately buy and sell for (the spread) is in fact a fee by a different name.
Let's look at a few examples and run down how they work. SimpleFX above shows a $1 spread between its bid and offer that you can enter position for on BTCUSD: Buy at 420.26 , Sell at 419.26. That means if you were to buy and sell right after each other, you would lose 0.23% on the nominal price. That means if you were at max 25x leverage that SimpleFX offers for BTCUSD, you would lose 5.75% of your margin right at the entry of the position. This is, in effect, just a fee for entering the position.
Here's 1Broker, another CFD provider, and the spread they offer on BTCUSD:
This is slightly more competitive than SimpleFX, as their spread is $0.80, or 0.1924%. Meaning at their max leverage for BTCUSD at 5x you would open instantly at a 1% loss on your initial margin that you put down.
Finally, here's WhaleClubCo spread which is the least competitive of the bunch:
On this site the spread varies, but at this time it's about $2. This is a 0.48% spread, and at their max leverage of 10x it means you open your position with a 5% loss right away.
The three examples above are for CFD sites which offer trading of BTCUSD. Let's quickly look at the bid-ask spread of some actual futures and spot exchanges which use an orderbook and have customers trading against each other, not the CFD trading against the customer.
Here's Bitfinex from their orderbook, note that the spread is tiny... only $0.10, which is 0.024%. At max leverage of 3.3x the spread ends up costing the trader 0.08%. However, on Bitfinex there's also a 0.2% transaction fee for taker and a sliding scale on maker. If you are on the highest fee structure then you end up paying 0.2% + 0.2% + 0.08% = 0.48% on the trade:
And here's BitMEX futures exchange orderbook with bid ask spread:
The spread on this contract, which has an orderbook that has bids and offers from clients, marketmakers, etc., is $0.38 or 0.091% notionally. At the max 100x leverage this ends up being a 9.1% fee from the initial margin you put down.
All the above examples, from CFD sites to Spot exchange to Futures exchange, illustrate the importance of NOT DOING MARKET ORDERS. Focus on setting a limit order that others can fill on orderbook exchanges, or the CFD site will have the price move up to fill you. Not only do you get a better entry price and avoid the sting of the spread (especially on orderbook exchanges, not so much on CFD), but it is a good way to regulate your own behavior and instill some discipline.
Lesson 1: Focus on making limit orders to reduce the sting of the bid-ask spread.
SECOND CONSIDERATION: MARGIN & LEVERAGE INTEREST FEES
Now that you realize that bid-ask spread is a fee for CFD sites, I will next discuss the issue of Interest Rate charges on Margin (leverage) accessed for positions in trading. CFD sites will always charge you for leverage. It varies by exchange and also by product within each exchange.
Starting again with SimpleFX fee on the BTC/USD pair:
This -$74 swap fee is taken from a position size of 1, which currently has a trade value of $42,065, which is a 0.176% fee. So every day you hold the position overnight you're paying about 0.18% nominally. Add in 25x leverage and you're paying 4.5% overnight off your initial margin, and that's after you already took a 5.75% hit entering the position.
Next, at 1Broker you have differing margin rates for long and short for BTC/USD:
So every night on 1Broker you're paying 0.15% on a long and 0.1% on a short position, even if it's just 1x. If you're at max 5x, that's a 0.75% or 0.5% fee every night on your initial margin, in addition to the 1% hit on initial margin you take.
And finally, let's look at the third CFD site, Whale Club Co, to see their fee structure:
Once again they are a little bit on the higher side, with 0.2% charged on any leverage used. That means at max 10x you're paying 2% overnight charges on your position in addition to the 5% loss you would take immediately on entry due to the bid-ask as discussed above.
So we see that the CFD sites are quite cumbersome with fees, between the bid-ask spread and the overnight fees for margin, it can get quite costly trading Bitcoin on them when there are cheaper alternatives.
Bitfinex, the top bitcoin spot-margin exchange, has a customer-based lending system. So instead of borrowing from the exchange and paying the financing charges like that, instead you are paying whatever the market rate is for the funds that other exchange customers are offering.
So not only is the Bitfinex bid-ask fee is better than CFD sites, the margin fees for holding the position are also better. If you are borrowing USD to long BTCUSD, you will be paying 0.025% roughly per day at current market rates. At 3.3x that's 0.08% of initial margin.
Lesson 2: If you are using CFD sites or Spot Margin Exchanges, focus on reducing your leverage to avoid cumbersome margin fees on the amount you borrow.
Finally, let's look at the margin interest financing fees on Bitcoin futures exchanges for holding overnight positions:
That's right -- no matter where you trade bitcoin futures at the reputable places we review on our site: OKCoin, BitMEX , and CryptoFacilities -- you will be paying NO interest charges regardless of whether you are using 2x, 10x, 20x, or 100x leverage!
Lesson 3: Use Bitcoin Futures contracts as the most efficient and cheap way to access leverage. When CFD sites offer you leverage they will charge you a high fee, and when Spot Margin sites offer you leverage, you will be paying a high fee to counterparties borrow the currency on margin. Bitcoin Futures, on the other hand, allow you to access 10x, 20x, even 100x with NO INTEREST RATE CHARGES WHATSOEVER!
At the web link you will find a full summary table that outlines the fee differences and advantages of trading bitcoin using CFD sites or spot-margin exchanges or futures sites.
The numbers speak for themselves. When it comes to speculating in Bitcoin price, BTCUSD, BTCCNY, the best choice is bitcoin futures exchanges. You will pay a higher spread fee on CFD sites, and higher leverage fees with Spot-Margin exchanges. To avoid fees on leverage trading, use your bitcoin to speculate on changes in bitcoin price in futures markets instead. If they are liquid contracts, the bid-ask spread will also be tighter. Between these two factors, trading bitcoin futures is a major discount to alternative exchanges for speculation and hedging.
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