Can You Trust Free Crypto Exchanges?

If you’re a crypto trader, you’ll likely know how frustrating transaction fees can be. Conducting sales, purchases, swaps, and many other functions on a crypto exchange often comes with a fee, with different platforms charging different rates. But there are now crypto exchanges that claim to charge zero trading fees. So, how is this possible? Can you really trust a free crypto exchange, or should you steer clear?

Typical Crypto Exchange Fees

We’ve previously looked at different types of crypto fees in detail, but we’ll quickly run over the main fees here before getting into the dynamics of free exchanges.

The most common type of exchange fee model is known as maker-taker. On an exchange, you have liquidity makers and liquidity takers. If you provide liquidity to an exchange, you’re a maker, and if you take it away, you’re a taker. You may see the terms “maker order” and “taker order” on your chosen crypto exchange, which relates to whether the transaction provides or subtracts liquidity.

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

But some exchanges use a spread fee model. As the name suggests, spread fees originate from a spread, the difference between the real price of a digital asset and its sale price. Like maker-taker fees, spread fees vary depending on the platform you’re using. 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 can charge various other fees, including deposit and withdrawal fees. Most crypto exchanges do not charge deposit fees, but withdrawal fees are more common.

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

However, some exchanges don’t charge maker, taker, or spread fees. Can such exchanges really be trusted, or are they scams in hiding?

Can Zero-Fee Exchanges Be Trusted?

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

Some exchanges can even use deceptive language to market themselves as free when there are certain ways they can still make money from you.

Take Robinhood, for example. This company offers users the ability to trade in and invest with various currency types, from the U.S dollar to Bitcoin. Robinhood claims to charge no maker, taker, or spread fees for crypto transactions. This sounds great, but there are underlying catches. What you may not know is that Robinhood charges a higher price for the purchase of assets than exchanges that charge fees. This way, the exchange can skim a profit off the top of each crypto purchase.

On top of this, Robinhood was charged by the SEC in 2020 for using misleading language on how it generates revenue. The SEC stated that Robinhood had been making “misleading statements and omissions in customer communications, including in FAQ pages on its website, about its largest revenue source when describing how it made money.”

In its investigation, the SEC found that Robinhood claimed to be commission-free but was making a profit in the background via its “unusually high payment for order flow rates.” The SEC also found that Robinhood claimed that its “execution quality matched or beat that of its competitors.”

While Robinhood certainly isn’t a scam, its trustworthiness has been questioned.

The same goes for some other exchanges like BlockFi. While BlockFi may claim to charge no 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 quickly add up over time.

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

Of course, there are crypto exchanges out there that are a scam. Some claim to charge zero fees across the board 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 QuadrigaCX’s former CEO Gerald Cotten died suddenly in 2018. Investigators found that Cotten had used investments in his company as a personal slush fund, and the crypto and funds are still missing.

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

But it isn’t all about fees—many factors determine whether an exchange is well suited to you. You should also look into the security features an exchange offers and whether the exchange itself has a good reputation overall. Even big exchanges like Coinbase have been known to deal in some illicit activity in the past, so it’s best to be aware of your chosen exchange’s past to determine if you can trust it with your money.

Zero Trading Fees Don’t Equal Zero Fees

While the lure of zero trading fees can be very tempting, it’s important to keep in mind that this isn’t necessarily indicative of a totally free crypto exchange. There are various other ways through which an exchange can make a profit from your money, so it’s always best that you check any given exchange’s fee schedule, as well as their other revenue streams, to ensure that you’re not being swindled.

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