Fees, Gas and the Real Cost of Trading On-Chain

The headline trading fee is the cost people check. It is rarely the largest one. Here is the full list, in roughly the order of how often it is forgotten.

Fee structures change. This describes the categories; check current terms for numbers.

The spread

The largest cost on most trades, and the one that never appears on a statement. Buying at the offer and later selling at the bid on an unchanged market costs you the full spread. On a market quoted 58/62 that is four cents on a sixty-cent position — over six per cent, round trip, for nothing.

Where a venue charges no explicit trading fee, this is where the cost lives instead. It has not gone away; it has moved somewhere less visible. What a spread costs you.

Slippage

The difference between the quote you saw and the average price you got. On thin markets this can dwarf the spread. Two hundred contracts against a book with thirty at the top is a different trade from the one the screen advertised. Depth and slippage.

Explicit trading fees

Where charged, these are straightforward and disclosed. Where not charged, do not conclude that trading is free — see the spread, above.

Network costs

On-chain actions cost gas. Depositing, withdrawing, approving a token and redeeming a settled position are all transactions. Costs vary with network conditions and are usually small on the networks these venues use, but they are per-action and they do not scale down with your position size. Twenty small trades pay twenty times.

Bridging and conversion

Getting collateral onto the right network in the right asset can involve an exchange, a bridge, or both. Each takes a cut, sometimes as an explicit fee and sometimes as a worse rate. On the way out you pay again.

This is a fixed cost of participating rather than a per-trade cost, but it needs amortising across whatever you actually do. If you deposit once and trade for a year, it is negligible. If you move capital back and forth chasing individual opportunities, it is not.

Capital lockup

The cost nobody bills you for. Collateral committed to a contract resolving in six months is unavailable for six months, and earns nothing. Against any reasonable alternative use of capital, that is a real percentage that must come out of any expected return before you call it an edge. Capital lockup does the arithmetic.

Adding it up for a cross-venue trade

Take a five-cent gap between two venues on what looks like the same question. Subtract:

• half the spread on each leg, which on typical markets is one to three cents total;
• any explicit fees, which on the regulated leg peak in the middle of the price range;
• slippage, if either side is thin;
• network and transfer costs, amortised;
• the capital cost of both legs for the remaining life of the contract;
• an allowance for the two questions not being identical.

There is frequently nothing left. Occasionally there is something. The point of doing the subtraction is to know which.

This is why this site reports a theoretical cross-market edge with an equivalence grade attached, rather than a return. The phrase is precise: it is what the prices imply, before any of the above. What a gap is actually worth works a full example, and how fees eat an edge generalises it.

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The life of a market, from listing to redemption.