Low-Fee vs. High-Leverage – How to Choose the Optimal Exchange for Your Trading Strategy?

Leverage traders are often enticed by high leverage because it enables them to boost their entry capital. However, even for a winning trade, high trading fees may erode a significant amount of profits. Trading fees increase the cost of each trade, while High leverage enables traders to maximize their profits. 

Depending on your trading strategy, you may have to make a tough decision between a low-fee trading platform and one that offers you high leverage. Here, we discuss both factors and how to choose the optimal exchange for your trading strategy.

Understanding Key Terms

The primary terms in this context are;

1. Leverage Trading Fee

Leverage trading fees are charged by the trading platform for every completed trade. Trading fees are usually a percentage of the traded amount and vary for makers and takers. The common Maker fees range from 0.01% to 0.05% while taker fees may be up to 0.1% of the traded amount.

2. Maximum Leverage

Maximum leverage is the highest leverage multiplier allowed by the trading platform. Leverage multiplier is the magnitude at which you wish to expand your exposure to the market. Maximum leverage on derivative platforms ranges from 5X to 500X

Why Fees and Leverage Levels Matter in Derivatives Trading?

Here’s why trading fees and leverage levels are significant to derivative traders;

1. Trading Fees

The total cost of your perpetual and regular derivatives trading position includes the trading fee and the cost of maintaining the position (funding rate in Perps trading). Depending on your trading strategy, trading fees compound over time. 

Exchanges often charge lower maker fees to encourage liquidity providers. Regardless, this still tallies to significant amounts. Low fees are vital for volume-based strategies, as small savings (in fees) compound into significant returns.

Also Read – List of Low Fee Crypto Exchanges

2. Leverage Multiplier

With high leverage, you can increase your exposure in a trade. For instance, entering a trade with 10X leverage and $100 capital means your exposure to the market is $1000. This expands your profit for winning trades. Leverage trading offers capital efficiency. 

However, keep in mind that it also increases your losses in losing trades and means a higher risk of liquidation. Regardless, traders with a high taste for risk are enticed by high leverage levels.

Comparing Leverage Level and Fees on the Top Derivative Trading Exchanges

Below are some popular crypto derivatives trading platforms and their fee and leverage structures

Also Read – List of Popular Decentralized Trading Platforms

Low Fees and High Leverage – What to Consider?

Before choosing between a platform that offers low trading fees and a platform that offers high leverage, here are some points to consider;

1. Trading Frequency

How often do you trade daily? This is a key factor to consider. Depending on your trading frequency, trading fees become a major point. While fees may appear as a small fraction of your trading volume, they compound over time in multiples of your trading frequency. 

For a high-frequency trader, selecting a low-fee exchange may be a more advantageous decision. Low-fee exchanges reduce the total cost of each trade, preserving your capital and profits for winning trades.

2. Position Size and Holding Time

Consider your position size in terms of fees and capital efficiency. If you trade high volumes, the fee charged per trade may be significant. In this case, a low-fee exchange could be a better option than a high-leverage exchange. 

However, traders with small or mid-size capital may prefer a high-leverage exchange to enable them to boost their exposure to the market. Simply put, low-fee exchanges work better for traders with sizeable positions, while high-leverage exchanges are best suited for traders with small capital.

Also, consider your holding time to avoid heavy funding fees. Funding rates are charged at intervals for as long as you hold your perpetual contract position (if you are on the paying side).  Choosing an exchange with a lower Interest Rate may be best suited for you. Learn more about how funding rates work.

3. Risk Tolerance

If you have a high taste for risk, then a high-leverage exchange is best suited for you. High leverage enables you to explore different risk levels through boosted positions. You may select a trading platform that offers satisfactory leverage. However, note the risks involved in using high leverage and how to avoid over-leveraging.

4. Liquidity and Slippage

In addition to the trading fee and maximum leverage, consider the liquidity on the trading platform. Low liquidity may cause significant slippage per order. High slippage erodes profits and may increase your losses in a losing trade. 

High-leverage platforms or pairs may have lower liquidity as traders use high multipliers to boost their exposure. Therefore, ensure that the trading platform or pair has enough liquidity to sustain the supported leverage.

5. Additional Trading Costs

Consider additional fees like withdrawal and deposit fees as part of the overall trading cost. Withdrawal and deposit fees may vary for crypto assets and fiat deposit methods. Check the fees that apply to the asset you wish to trade, deposit, or withdraw.

Also Read – List of Crypto Platforms That Accept PayPal

6. Balanced Fee and Leverage Exchange

Several derivative trading platforms offer competitive fees and considerably high leverage. Platforms like Binance and Bybit offer up to 125X leverage and maker fees as low as 0.02% of the traded volume. 

While their leverage and fees may be lower than those offered by other trading platforms, they are within acceptable levels. Additionally, they have sufficient liquidity for most pairs. Consider similar platforms with a balanced fee structure and leverage levels.

Conclusion

In a nutshell, the fee and leverage dilemma is a choice between capital preservation and capital multiplication. While high leverages give you the freedom to increase your exposure to the market and maximize your profit, low fees preserve your capital and profit. 

We discussed a few factors that may affect your decision in this regard. It is important to mull over these before choosing a platform for trading with leverage. As usual, we recommended platforms that ensure the security of your capital, in addition to the fee structure and leverage levels. These are the primary things to consider. 

FAQs

1. What are the best exchanges offering both low fees and high leverage?
   MEXC tops lists for 400-500x leverage, and it also offers zero to near-zero maker fees. You can also consider others like PrimeXBT.

2. Which exchanges allow high leverage without KYC (or for US users)?
   Investors can consider privacy-focused derivatives trading platforms like Lighter, GMX, Hyperliquid, or no-KYC CEXs.

3. What hidden charges (beyond maker/taker fees) should I watch for?
   There are many types of hidden charges are there, that you should know, such as funding rates, overnight/liquidation fees, and slippage in low-liquidity pairs.