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I'm interested in learning about how trading works, but this is all very new to me so bear with me. (I'm just poking around at this point, obviously nowhere near ready to actually be trading)

Some exchanges have fees that are structured like this: https://www.kraken.com/help/fees.

The docs say "fees are calculated as a percentage of the trade's quote currency volume". There are two columns in the chart on this page, and I'm not entirely sure what places me in one column or the other. Can somebody point me in the right direction?

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    What volume are you talking about trading? I'm not convinced that anything you do will have any significant effect upon liquidity of the market. – keshlam Apr 18 '16 at 1:40
  • I've heard maker/taker in the context of options of futures contracts, where the underlying entity doesn't exist until it's created. A maker is someone who sells an option/contract thus creating a new one. A taker is someone who buys an existing option/contract. (note: I could be wrong on this, so someone else please comment/confirm; generally, maker means you increases the open interest, taker means you decrease it). – barrycarter Apr 18 '16 at 1:49
  • Let me get this clear you don't know what you are doing yet you want to trade in Bitcoins. Set aside some money you want to lose and go ahead and lose it. If you don't understand these terms why don't you call the broker/provider and ask them? – Victor Apr 18 '16 at 8:35
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    @barrycarter - the worst thing about trading when you don't know what you are doing is not the strategy, the worst thing, and where most novices will lose all their money is in their risk and money management - as they won't have any. They will basically be guided by greed and fear and will soon end up loosing most if not all of their capital. So the best thing the OP should do is set aside some money they can lose (maybe $1000) and be prepared to lose it all, because they will lose it all. – Victor Apr 18 '16 at 22:33
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    @barrycarter - it is called a demo or simulation account or paper trading. Still the problem with this is that if you have some lucky trades with the demo account and you still don't employ risk and money management, you will open a real account and your emotions when dealing with real money will take over, and you will still lose all your money. If you want to take trading seriously, you need to treat it like a business - have a plan, a set of rules, and risk & money management, and back test the validity of your strategies. – Victor Apr 18 '16 at 22:46
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In this context, I looks like "maker" means that you place a limit order that sits on the book. If you place a market order or you place a limit order that crosses an order already on the book, you are a "taker." The "makers" are making liquidity by placing orders that are available to satisfy later market orders. The "takers" are removing liquidity by reducing the number of orders on the book that can match against any subsequent orders.

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    I don't understand why this answer was voted down; it is, in fact, literally, by definition, the correct answer. – dg99 Apr 26 '16 at 17:55
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    @dg99 I was the target of serial down-voting one day a while back. Whoever did has learned exactly how many answers to down-vote without the automatic correction kicking in to undo it. – user32479 Apr 26 '16 at 18:29
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    If the highest bid is e.g. 200$ and the lowest ask is 210$ and I would make a bid of 205$, I'm still a maker because it is not executed instantly and it goes to the book first. – Andi Giga Jul 13 '17 at 15:22
37

Not sure why @Brick's answer was voted down; let me try to state it more precisely.

maker

  • Type 1 (seller): You tell the exchange that you want to sell at price P, but P is higher than the highest price at which any Type 2 maker is currently willing to buy. (You're demanding too much money in the eyes of everyone who's said they want to buy.)

  • Type 2 (buyer): You tell the exchange that you want to buy at price Q, but Q is lower than the lowest price at which any Type 1 maker is currently willing to sell. (You're trying to spend too little money in the eyes of everyone who's said they want to sell.)

Congratulations! Since your request cannot be matched against any existing maker's request, you've just "made" liquidity by adding your desired transaction to the exchange's order book. Your order will sit there until it either gets filled (i.e. someone bites on your offer), expires, or you cancel it.

taker

  • Type 1 (seller): You tell the exchange that you want to sell at price R, and R is at or below the price currently advertised by at least one Type 2 (buyer) maker. (At least one known buyer thinks the amount of money you're asking for is reasonable.)

  • Type 2 (buyer): You tell the exchange that you want to buy at price S, and S is at or above the price currently advertised by at least one Type 1 (seller) maker. (At least one known seller thinks the amount of money you're willing to spend is reasonable.)

Congratulations! Since your request can be matched against some existing maker's request, it will get executed immediately (more or less) against the best available maker's price and you will have "taken" liquidity by removing one or more makers' desired transactions from the order book.

If an exchange wants to promote or penalize making or taking it can adjust its fees/rebates for each activity. And it can reduce its fees if you're a high volume customer. That's what the tables show on the web page you linked.

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    good try i guess, but the poster did ask for "plain english", not something where you have to read like math text book – nanonerd Apr 18 '17 at 3:33
  • Without specifying what a type 1 and type 2 is, your explanation lacks some clarity. – Yohan Obadia May 31 '17 at 8:33
  • Why would the exchange want to increase/decrease liquidity though? If somebody "makes" a new price that was not previously on the book, does that help the exchange in the sense that it helps create price changes/fluctuations in the market? Why would that be good to the exchange though... What does "liquidity" exactly mean in this context then. – xji Sep 28 '17 at 8:45
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    @JIXiang Exchanges have a vested interest in increasing traffic in general, since they charge a fee on at least one side of each trade that they handle. (Also, the more trading that happens on their venue, the more they can convince traders to subscribe to their market data, special subscriber programs, etc.) Most US exchanges feel the best way to increase traffic is to offer rebates to liquidity makers, as the takers will follow. A few US exchanges (NASDAQ BX, BATS BYX, and BATS EDGA) feel the opposite: give rebates to the takers and the makers will follow. – dg99 Sep 28 '17 at 19:28
  • @nanonerd This is much better, at least for me, than the other answers. – Hellreaver Jan 10 '18 at 8:32
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As you are asking specifically for Kraken, here is what I found:

What is ​Maker vs Taker?

A trade gets the ​taker​ fee if the trade order is matched immediately against an order already on the order book, which is ​removing liquidity​. A trade gets the ​maker​ fee if the trade order is not matched immediately against an order already on the order book, which is ​adding liquidity​.

Market vs. Limit orders

When you place a ​market order, you want to buy/sell as soon as possible, at the ​best available price. This is the the simplest kind of order. Market orders always get the taker fee. With a ​limit order​, you establish your desire to buy/sell, but ​only at a certain or better price. A limit ​buy order with the limit price ​below market price will not be matched immediately and once it is matched the trade will get the reduced maker fee. A limit ​sell order with the limit price ​above market price​ will not be matched immediately and once it is matched the trade will get the reduced maker fee.

Source

Limit sell order

Imagine you have bought 100 ETH.

  • Above market price: The market is currently at $150 and you think it will reach $160. You put a sell limit order at $160. We can call that order a take profit order. In such a case, you will be adding additional ETH to the book, that is why you will be paying the maker fees.

  • Below market price: The market is currently at $150 and you want to protect yourself against a sudden loss. You put a sell limit order at $140. It is a mistake, because a sell limit order is "An order to a broker to sell a specified quantity of a security at or above a specified price". Because of that when you create your order, the exchange see that you want to sell at a price greater than or equal to $140. Because the price is $150, your order is executed immediately, as if you had made a market order.
    In such a case, you will be paying the taker fees. Because your order is executed immediately, you are not adding anything to the order book, and you might match another order set by someone else to buy ETH at a certain price. By matching this order, you remove the opportunity for someone else to sell his ETH at this price, thus you are removing liquidity.

You can use a similar way of thinking for the Limit buy order.

  • Are you charged the taker fee only once? Or do you get charged it to close your order as well? My guess is once but I'd like to make sure – ycomp Aug 18 '17 at 18:33
  • Why would the exchange want to increase/decrease liquidity though? If somebody "makes" a new price that was not previously on the book, does that help the exchange in the sense that it helps create price changes/fluctuations in the market? Why would that be good to the exchange though... What does "liquidity" exactly mean in this context then. – xji Sep 28 '17 at 8:45
5

Someone is classed as a maker if they attempt to buy lower than anyone is willing to currently sell OR sell higher than anyone is willing to currently buy.

Because a maker order cannot be executed right away due to the buy/sell order book then this creates liquidity in the market, which is often favored by exchanges, hence the lower fees.

Someone is classed as a taker if their actions would in all probability be executed by the exchange immediately, in effect taking liquidity from the market. This happens when someone attempts to buy at or higher than anyone is willing to currently sell OR sell equal to or lower than anyone is willing to currently buy.

I guess you could summarise:

Maker orders are not executed immediately; buyers and sellers must reach your ask/buy before the order is executed. Taker orders are executed immediately, and take liquidity away from the market. You will be charged maker/taker fees accordingly.

  • Why would the exchange want to increase liquidity though? What does "liquidity" exactly mean in this context then. Because an order is not immediately executed, the money from the customer is frozen/put into the hands of the exchange but not put into another customer's account, so that the exchange benefits from such a situation? – xji Sep 27 '17 at 21:04
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    Perhaps it's because a wider market spread introduces uncertainty as to the market direction/trend. If market spread was always zero then I guess you might be able to determine market movement purely from the order book? (Don't quote me on that one - and don't forget there are always other exchange's order books to take into consideration)... – Pixel Sep 28 '17 at 7:28
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    ...Whereas if the market spread is non zero then the market is on hold until the price catches up with a buy/sell order (perhaps due to activity on another exchange) or someone puts in a taker order on the current exchange. I'd hazard a guess it's to introduce unpredictability into the market, and "get things moving" in the sense it could force people to make new orders. I'm not 100% sure about this, just an educated guess, but something I will look into ! – Pixel Sep 28 '17 at 7:28
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    This answer made it finally make sense for me. – coderama Oct 31 '17 at 17:16
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    @Jas yes, the fee is applied one time only, when the order is actually executed. And if you cancel your order before it is executed, you will pay nothing. All the exchanges I have ever used have never charged for cancelling an order. – Pixel Dec 28 '17 at 12:31
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So Maker mean: Pending order which wait for the market price reach it sooner or later in future. While taker mean Execution of the order at current market rate.

1

First know who is maker and who is taker?

If you place an order above the current ticker price for selling or below the current ticker price for buying, you add liquidity to the market and you thus act as maker. In this case you have to pay maker fee.

If you want to fill your order at the current market price, you are taking liquidity from the market and you thus act as a taker. In this case you have to pay taker fee.

Usually taker fee will be higher than maker fee.

protected by Chris W. Rea Jan 16 '18 at 12:04

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