We see it all over the place – “Commission-free trading”. But is there really such a thing as a free lunch? Clearly, the answer is – No.
Coinberry is proud to offer totally transparent pricing!
How do crypto exchanges and crypto brokers, such as Coinberry, make money? There are four main models:
- charging a spread – Coinberry method
- charging commission
- charging users for processing deposits or withdrawals of funds (either crypto or dollars)
- getting volume-based kick-backs from liquidity providers
All these models can be used either alone, in combinations or simultaneously – this is why you see different published fees and costs for trading cryptocurrency – our prices are built into the trade using the spread.
When you place a trade order on the Coinberry platform an order preview will show the included fee prior to confirming.
1. What’s in a spread?
Coinberry sources Bitcoin for a lower price as a large buyer in its network of liquidity providers then individuals do and then re-sells it at the trading price to our users. The difference is “the spread” and how we make money on trades.
Because crypto brokerages trade large volumes on their networks, they are able to get better prices then a single user would be able to on their own (everything is cheaper in bulk).
Canadian crypto brokers are able to make large transactions at lower prices to facilitate their order book of user transactions. Furthermore, Coinberry, is also able to offer crypto-to-CAD pairs that are not available on other Canadian crypto exchanges.
The way a crypto broker shows currency prices
The final buy price or set price is a result of a number of moving parts.
a) The final aggregated order book a crypto broker puts together by pulling together all the crypto sources they plug into. It’s important to note that the gap between the buy and sell price in the final order book is 100% market driven. This gap can be very small, or quiet noticeable, all depending on the price of crypto, how volatile it is at that moment, the size of the trade being executed and the cryptocurrency in question.
b) Any fees the crypto broker pays themselves to facilitate trades
c) Any spread the crypto broker incorporates into its final price that it presents to its users.
2. Charging Commission – Let’s take a look at the past
In the classical equities world, stock exchanges and brokerages usually charged commissions for each trade placed. Back in the late 90s, retail commissions used to be as high as 49.99$ per trade, then budget brokers like Questrade sprung up charging $19.99, $9.99 and then $4.99 per trade and the entire financial industry followed suite. These days it is not uncommon to see “commission-free” trades being offered by crypto brokerages such as US-based Robinhood – but how do they make money then? We’ll get to that later. It’s important to note that one hardly ever sees a crypto exchange offering “commission-free” trading, these are usually offered by crypto brokerages. Let’s look at the difference between the two to understand why.
What is the Difference Between a Brokerage and an Exchange?
Brokers and exchanges are both ways to acquire crypto currency and it can be easy to confuse the two. The main difference is that a broker sets the price that they’re willing to sell crypto to their clients for (or buy crypto from their clients for). They either hold the funds or work with a network of other brokers or exchanges in order to keep sufficient supply. Coinberry is an example of a broker. Coinbase is another example. What’s important to remember is that when you buy or sell with a brokerage, you are buying or selling from the brokerage directly, not from another user. A crypto brokerage usually makes money by re-selling to its users crypto at a slightly higher price than what it sources it for itself (more on that later)
With an exchange, there are multiple buyers and sellers that are placing offers to buy and sell simultaneously. Buyers can choose to buy at any price, but the order will not be completed until a seller agrees to the transaction. The equilibrium price on these exchanges are set as the last agreed on price between buyers and sellers. A crypto exchange usually makes money by charging a % of the trade it facilitates for its users.
There are pros and cons to each platform depending on what you, as the trader, are looking for; but at the end of the day, both types of businesses usually make money when users execute trades on their platforms.
3. Charging for deposits and withdrawals onto a platform – highway robbery?
Some outdated crypto brokerages and exchanges in Canada still charge their users for depositing money to trade with on their platform. This is a pretty basic way to make money – a user deposits $1000 on a platform, but they are only credited $950 to trade with. The 50$ is profit. We at Coinberry absolutely hate this model as we consider it nothing less than highway robbery. With this model, you as the user have not made a single trade yet, and you’re already starting out in the negative. That’s why we did away with charging our users anything for depositing or withdrawing money with us.
4. Getting volume-based kick-backs from liquidity providers. Commission-free trading – a hoax?
Let’s go back to how “commission-free” crypto brokers make money. As we said, unfortunately, there’s no such thing as free lunch. And the way they make money is much simpler than you’d think – kickbacks.
If a broker re-sells crypto its users and is not incorporating a spread into its price, and is not charging commission, they are usually simply getting a kick-back at the end of the month based on total volume they transacted with whoever they source their crypto from. Obviously, this kickback is simply incorporated into the price the crypto broker itself is able to source crypto for. Basically, instead of charging a spread when the crypto is re-sold to the final user, the spread is incorporated further upstream, where the crypto broker is sourcing themselves. At the end, that spread is still passed on to you as the user. This model is not very common in Canada but is often used in the US.
How does this all affect you – the user?
You will see varying fees everywhere you look because platforms may use a combination of the models described above, and may publish their fees differently. Some, such as Coinberry, display the final “out the door” price you will pay to buy or sell with us from the very beginning of your journey (even as early as our homepage!). We prefer this method as we believe it shows you, the user, from the get-go, exactly what you will be paying when buying or selling with us. And we prefer this clarity.
Some platforms do the old bait-and-switch – they show you the “market-price” or the price they source crypto for until the verrrrrrrrrrry last confirmation page, where all of a sudden, the price displayed is much higher, because, of course, now they’ve incorporated their spread. Their hope there is that you’re already committed to your trade, so you’ll just sigh under your breath and go ahead and place it anyway. Yet other platforms are still charging exorbitant amounts to deposit money on their platforms before you’ve even made a single trade.
At the end of the day, it all depends on what you are looking for. If you are looking for a simple, secure and lightning-fast way to buy your crypto, where deposits are free and processed almost instantaneously, a crypto brokerage, such as Coinberry, is your way to go. And when markets are moving fast, as they often do with crypto, time is of the essence!