In cryptocurrency trading, both bitcoin leveraged trading and contract trading involve commission costs, and the difference between how these two fees are calculated and how high or low they are is often confusing to investors. In this article, we will analyze the fee components and differences between bitcoin leveraged trading and contract trading to help investors understand which trading method is more costly and make more informed investment decisions based on the actual situation.
Basic Components of Bitcoin Leveraged Trading and Contract Trading Fees
Leveraged Bitcoin trading and contract trading, while seemingly similar, have significant differences in the composition of their fees. Before discussing which trading method has higher fees, we need to understand the fee mechanisms of both.
1. Fee components of leveraged trading
In leveraged trading, an investor trades by borrowing funds in an amount that is a multiple of the principal amount. The commission for a leveraged trade is usually made up of the following components:
- Interest on Borrowing: Since the funds are borrowed for trading, the exchange will charge a percentage of interest on the borrowed funds. Interest is usually calculated on a daily basis and the higher the leverage, the greater the interest cost.
- Opening Fee: This is the base commission paid when trading and is usually charged as a percentage of the trade amount.
- Closing Fee: When an investor voluntarily closes a position, there is usually also a fee.
Generally speaking, fees and interest on borrowed funds are the main expenses of leveraged trading, and these expenses accumulate with the duration of trading, especially when high leverage is used, the expense burden is even heavier.
2. Composition of commission for contractual transactions
Contract trading, on the other hand, involves an investor predicting and trading the price of Bitcoin in the form of a contract, without actually owning the Bitcoin. In contract trading, the main components of the commission include:
- Opening Fee: Similar to leveraged trading, a percentage commission is charged for opening a position.
- Closing Fee: When closing a position, a percentage of the commission is also payable.
- Funding Fee (Funding Rate): In contract trading, a funding fee is the fee paid for holding a contract position, which is usually paid on a regular basis.
Compared to leveraged trading, the commission component of contract trading is simpler, mainly consisting of opening and closing fees, as well as funding fees. It should be noted, however, that the funding fees for contract trading can sometimes be higher, especially during times of high market volatility.
Bitcoin Leverage vs. Contract Trading Fees
After understanding the fee components of both, we can further analyze the fee differences between bitcoin leveraged and contract trading.
1. Leveraged trading fees are typically higher
Typically, bitcoin leveraged trading can be relatively expensive, especially when using higher leverage. The main reason for this is that leveraged trading involves not only paying the opening and closing fees charged by the exchange, but also incurring additional interest on borrowed funds. These additional costs are accentuated at higher leverage, especially if the position is held for a longer period of time.
In the case of the Euronext, for example, if you trade with 5x leverage, the interest cost increases with the trading time. For example, if the borrowed funds are $10,000, at a daily interest rate of 0.03%, the daily interest on borrowing is about $3. If the position is held for 7 days, the interest on borrowing would be $21. As the leverage multiplier increases, the interest burden increases significantly.
2. Highly volatile funding costs for contracted transactions
Although the commission of contract trading does not have the direct interest burden of borrowing as in leveraged trading, its funding fee (funding fee) is subject to market conditions and fluctuates widely. Particularly in times of high market volatility, the funding fee may rise significantly. For example, in some cases, the funding fee may reach 0.1% or even higher, while in markets with less price volatility, this fee may remain low.
Generally speaking, the funding fee for contract trading is settled according to the time of holding the position, therefore, it may be relatively cost-effective to hold a short-term position, but you need to pay attention to the accumulation of funding fees when you hold a long-term position.
Which trading method has a higher commission?
Bitcoin leveraged and contract trading fees are unique, and the level of fees for both depends on how the trader operates and how volatile the market is.
- Leveraged trading is expensive, mainly due to the accumulation of interest on borrowing and other fees. Especially when higher leverage is used, the fee burden can be significant.
- Funding fees for contract trading can fluctuate widely, but overall, the fees for short-term contract trading are relatively low. For investors with long-term positions, it is necessary to focus on changes in funding fees.
Therefore, which trading method has a higher commission depends on the investor's use of leverage, the trading cycle, and the volatility of the market. If short-term trades are made and excessive leverage is not used, the commission for contract trading may be lower; however, if leverage is used at a higher level, the fees for leveraged trades may be more burdensome.
How can I reduce my handling fee expenses?
Regardless of whether you choose to trade on leverage or contracts, lowering your commission expenses is always a key concern for every investor. Here are a few practical strategies to reduce your fees:
1. Choosing the right leverage
For leveraged trading, too high a leverage multiple can lead to a higher interest burden on borrowing, so choosing an appropriate leverage multiple can effectively reduce costs. If only short-term transactions are undertaken, low leverage transactions can be chosen to minimize the impact of interest charges.
2. Focus on exchange preferences and rebate policies
Many exchanges offer certain discounts or rebate policies to help traders reduce commission expenses. For example, the rebate mechanism provided by the European and Italian exchanges can help users reduce the cost of opening and closing positions, especially in the case of large transactions, the effect of rebates is more obvious.
3. Controlling the duration of positions
For contract trading, the funding fee is closely related to the time of holding a position. Short-term traders can minimize the time of holding a position in order to reduce the accumulation of funding fees. Investors with long-term positions need to adjust their positions in a timely manner according to market conditions to avoid paying excessive funding fees.
reach a verdict
Fees for leveraged and contract trading in bitcoin differ in composition, but the final level of fees is influenced by a number of factors. Overall, leveraged trading carries a relatively heavy fee burden due to the interest involved in borrowing money, while the fees for contract trading are more affected by fluctuations in funding fees. Investors should choose the appropriate trading method according to their own trading strategy and market conditions, and take appropriate measures to minimize commission expenses.
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