Mt.Gox trading fees: is a revision due?

[robocoin]

I think a change in the current fee system is inevitable for the future. Because the fees exponentially rise to the BTC/USD price and thus provokes a higher volatility. Even with fees as low as 0.3%, the price variation you'll need at 50$/BTC would be 0.29955$ and 0.59820% with 0.6% fee, to buy back without loss. Way too much if you want high frequency trading...

I've illustrated the fee increase in relation to the BTC/USD price, by means of the variance which would be necessary to execute a ±0 trade at a given BTC/USD rate. So how big does the minumum price variation need to be for a trade to become profitable.

 --> Mt.Gox Fee Shedule



Or in a short table:

$/Fee      0.60%   0.55%    0.53%    0.50%     0.46%    0.43%    0.40%     0.30%    0.29%     0.28%    0.27%    0.26%     0.25%
$5.00     0.0600   0.0550   0.0530   0.0500   0.0460   0.0430   0.0400   0.0300   0.0290   0.0280   0.0270   0.0260   0.0250
$10.00   0.1200   0.1100   0.1060   0.1000   0.0920   0.0860   0.0800   0.0600   0.0580   0.0560   0.0540   0.0520   0.0500
$15.00   0.1800   0.1650   0.1590   0.1500   0.1380   0.1290   0.1200   0.0900   0.0870   0.0840   0.0810   0.0780   0.0750
$20.00   0.2400   0.2200   0.2120   0.2000   0.1840   0.1720   0.1600   0.1200   0.1160   0.1120   0.1080   0.1040   0.1000
$21.00   0.2520   0.2310   0.2226   0.2100   0.1932   0.1806   0.1680   0.1260   0.1218   0.1176   0.1134   0.1092   0.1050
$22.00   0.2640   0.2420   0.2332   0.2200   0.2024   0.1892   0.1760   0.1320   0.1276   0.1232   0.1188   0.1144   0.1100
$23.00   0.2760   0.2530   0.2438   0.2300   0.2116   0.1978   0.1840   0.1380   0.1334   0.1288   0.1242   0.1196   0.1150
$24.00   0.2880   0.2640   0.2544   0.2400   0.2208   0.2064   0.1920   0.1440   0.1392   0.1344   0.1296   0.1248   0.1200
$25.00   0.3000   0.2750   0.2650   0.2500   0.2300   0.2150   0.2000   0.1500   0.1450   0.1400   0.1350   0.1300   0.1250
$26.00   0.3120   0.2860   0.2756   0.2600   0.2392   0.2236   0.2080   0.1560   0.1508   0.1456   0.1404   0.1352   0.1300
$27.00   0.3240   0.2970   0.2862   0.2700   0.2484   0.2322   0.2160   0.1620   0.1566   0.1512   0.1458   0.1404   0.1350
$28.00   0.3360   0.3080   0.2968   0.2800   0.2576   0.2408   0.2240   0.1680   0.1624   0.1568   0.1512   0.1456   0.1400
$29.00   0.3480   0.3190   0.3074   0.2900   0.2668   0.2494   0.2320   0.1740   0.1682   0.1624   0.1566   0.1508   0.1450
$30.00   0.3600   0.3300   0.3180   0.3000   0.2760   0.2580   0.2400   0.1800   0.1740   0.1680   0.1620   0.1560   0.1500
$39.00   0.4680   0.4290   0.4134   0.3900   0.3588   0.3354   0.3120   0.2340   0.2262   0.2184   0.2106   0.2028   0.1950
$49.00   0.5880   0.5390   0.5194   0.4900   0.4508   0.4214   0.3920   0.2940   0.2842   0.2744   0.2646   0.2548   0.2450
$59.00   0.7080   0.6490   0.6254   0.5900   0.5428   0.5074   0.4720   0.3540   0.3422   0.3304   0.3186   0.3068   0.2950
$69.00   0.8280   0.7590   0.7314   0.6900   0.6348   0.5934   0.5520   0.4140   0.4002   0.3864   0.3726   0.3588   0.3450

   >>> more in this spreadsheet

Pay by order/clearing and fee after order-volume, may also stop the goofy "order stacking" and pseudo manipulative penny bots (changes 'last price' feed).

Unfortunately I have no perfect improvement proposal, but you might have one.

Maybe it's not just about a fee revision, it could be part of a much bigger step forward.  

[zvs]

with bitcoins at this price, a flat $ commission would make more sense

it'd also stop all these 0.01 nonsense things... or a fee to list... but either of those would make them a lot less money.

the (base) .6% is excessive (* to such a degree that for a high volume trader, it'd make sense to trade to yourself in certain circumstances)

[Herodes]

I agree the fee scheme needs to be revised:

I wrote MtGox this e-mail today:

I have a question about trading fees.

I guess these limits were set a lot earlier, when the btc-price was a
lot lower.

So say you need to trade 25000 bitcoins to have a trading fee of 0.29%,
that involved a lot less money when the bitcoin price is 5, as compared
to the bitcoin price being 40.

At 25000 btc, a price of 5 gives a USD trade total of 125000, while at a
price of 40 this gives a trade total of 1000000 (1 million USD).

I think it would be better to have flat rates for USD, so that the
current requirement for a 0.29% trade fee would be lowered to 125000/40
= 3125 BTC.

As it is now, getting lower trade fees is very difficult unless you're
an extreme high roller.

Basically it's become about 10 times more difficult to get lower trade
fees.

Can you query Mark with this ? Thanks.

Last time I had an issue, they told me to please get in touch with them first, before posting on the forum. I did this now, but the answer was a copypaste one that did not answer my questions:

Hello

Thank you for your email. The fees are charged entirely on the volume and the fee varies according to each interval for the volume.

For Eg : If a new user trading 1000 BTC.

For your first 100, you will be charged 0.6% then the second 100 Bitcoins you sell you will be charged 0.55% then for teh 200-499 bitcoins you sell, you will be charged 0.53% and for the 500-999 bitcoins he trades, he will be charged 0.5% and the 1000th bitcoin traded he will be charged will be charged 0.46%.

Please note that this would have to be the volume in 30 days so every thirty days the Volume Discount Display on User's Panel will be revised.

Another Eg:

Let say a user trade's 200 bitcoins this month, but don't trade again until another 2 months. In the next 2 months, user will start at 0.6% again for his first 100 bitcoins. But if he continue to trade everyday, his volume discount should remain based on the past 30 day volume.

Let us know if you would require any further assistance regarding this issue.

Thanks,

MtGox.com Team

I don't know if it's a lack of understanding the issues at hand, or if it's a matter of not reading what I write propery, but I didn't have the impression that my questions were adressed.

If somebody at MtGox can chime in here, and in writing proove that they acknowledge the issue and understands it and have Mark notified, that would be great. I may as well get in touch with him later on as well.

[Pteppic]

I think the fees schedule would benefit from a revision, but given Mt.Gox's market dominance, I can't see what would make them actually do it except for significant competition from another exchange. From their point of view it would just be a giveaway - offering the same service for less, when they are not exactly short of customers signing up at the present prices.

Bitstamp does their fee schedule based on dollar trading values, rather than BTC, though. You would think that it would work well, since their business costs are then denominated in the same currency as their income.

For me, the other problem with Mt.Gox's fee schedule is the jump from 0.4% for >5,000BTC to 0.3% for >10,000BTC. This is a huge step and it is also a huge target to try to reach. Even a new layer of 0.35% for >7,500BTC would help.

As it is, a bot trader operating on thin margins and trading 9,000BTC per month is at a serious disadvantage compared to another trader doing 11,000BTC and is paying more in fees (36BTC compared to 33BTC each month)

[Herodes]

I think the fees schedule would benefit from a revision, but given Mt.Gox's market dominance, I can't see what would make them actually do it except for significant competition from another exchange. From their point of view it would just be a giveaway - offering the same service for less, when they are not exactly short of customers signing up at the present prices.

Bitstamp does their fee schedule based on dollar trading values, rather than BTC, though. You would think that it would work well, since their business costs are then denominated in the same currency as their income.

For me, the other problem with Mt.Gox's fee schedule is the jump from 0.4% for >5,000BTC to 0.3% for >10,000BTC. This is a huge step and it is also a huge target to try to reach. Even a new layer of 0.35% for >7,500BTC would help.

As it is, a bot trader operating on thin margins and trading 9,000BTC per month is at a serious disadvantage compared to another trader doing 11,000BTC and is paying more in fees (36BTC compared to 33BTC each month)

You have good points, but usually, with larger volume, fees should come down, not go up 10x as they've done here with MtGox. As the market dictates that only competition will bring fees lower, I don't always agree with that - Mark has said that he supports bitcoin, and I do not think he's in it purely for the money, if so - he could probably have retired already.

This fee structure is adding to MtGox revenue on an increasing basis, without most people complaining, because these fees are sort of 'hidden', and most people won't think much about them. Just imagine the outrage if wiretransfer fees suddenly increased 10 times!

[myself]

You can trade via bitfinex exchange and get 0.4% fee

[robocoin]

I think we agree about that a fee based on USD rather than BTC would make things easier.
My point is that the current system introduces some complication when the BTC price increases. Not a problem if the price shots up like in these days... But imagine you buy your first 100 BTC at $99/BTC you'd need the price to rise $1.1844 BEFORE you enter any profitable range. Too much? I think so.

On the long term, people probably don't care about this. But I am sure when institutional investors enter the stage with their little super computers to do HF, Mt.Gox has to introduce another system or somebody else will be called the "the world's largest bitcoin exchange".
 /just curious

I agree the fee scheme needs to be revised:

I wrote MtGox this e-mail today:

...
At 25000 btc, a price of 5 gives a USD trade total of 125000, while at a
price of 40 this gives a trade total of 1000000 (1 million USD).
...

It's actually so easy to see the fault. As long as no one complains...

[Bit_Happy]

This might be a good time to cut fees by 75%

[Herodes]

This might be a good time to cut fees by 75%

Agreed, they should rather be calculated from USD trading volumes than from BTC trading volumes, the higher the price, the harder it is to get a reduced fee. I also understand the fee starts at 0.6%, I think this is too high. Perhaps 0.5% would be better.

[Sukrim]

One of the reasons MtGox cited in the past for it's relative high fees was to allow competition into the market. If they went to the lowest fee they can manage, their market share would go even higher. Currently you can just use a different exchange (or even a meta-exchange like bitfinex) to get less fees.

[muyuu]

One of the reasons MtGox cited in the past for it's relative high fees was to allow competition into the market. If they went to the lowest fee they can manage, their market share would go even higher. Currently you can just use a different exchange (or even a meta-exchange like bitfinex) to get less fees.

Which is perfectly fine and a convenient fact.
Having 80%+ of the market liquidity in a single exchange is asking for trouble. It's not 80% any more though, should be around 60% tops.

[happywarrior]

I came across this blog post that explains how major exchanges set their fee schedules to promote liquidity:

http://blog.bitcointitan.com/post/25759461251/maximizing-liquidity-through-the-make-or-take-model

[robocoin]

I came across this blog post that explains how major exchanges set their fee schedules to promote liquidity:

http://blog.bitcointitan.com/post/25759461251/maximizing-liquidity-through-the-make-or-take-model

Great article! Bitcointitan did all the research I have nothing to add to what he wrote! I've been looking for this. This could bring a little bit more "sanity".

[robocoin]

Forgive me but I have to secure this here It's the solution.

Bitcoin Titan & Trading Titan
BITCOIN RELATED NEWS AND MARKET COMMENTARY.
Maximizing Liquidity Through the Make-or-Take Model

Bitcoin exchanges must adopt mainstream exchange fee schedules, which incentivize market makers, in order to substantially increase liquidity.  In this paper I will propose a hypothetical bitcoin exchange, modestly called the “Super-Exchange”, that will increase liquidity for all trading between currencies, however, BTCUSD will be used throughout the paper as an example.  In the context of the Super-Exchange, liquidity means bitcoins can be traded for other currencies without causing a significant movement in the BTCUSD price and with minimum loss of value.[1]

Unfortunately, all bitcoin exchanges currently use a flat percentage model, which does not promote liquidity.  For example, Mt. Gox (Japanese based exchange), and CampBX (US based exchange) charge 0.6%[2] and 0.55%[3] respectively, for each transaction, to both the buyer and the seller.  Under this model, especially with such high commissions, there is no incentive for market makers to participate.

Modern exchanges employ the “make-or-take” model to incentivize market makers to provide liquidity.[4]  Under the make-or-take model market makers make money it two ways, 1) “trade across the bid-ask spread,” and 2) “earning liquidity rebates.”[5]

How market makers profit
The first way market makers generate revenue is to trade across the bid-ask spread by offering to buy a commodity or security at a certain price, and sell the same commodity or security at a higher price.  For example, a market maker on the Super-Exchange exchange may offer to buy bitcoins at $4.90 USD, and sell bitcoins at $4.91.  The market maker makes money by buying low to one trader and selling high to another trader many, many times throughout the day.

The second way market makers generate revenue is through liquidity rebates.  Modern exchanges, like the NYSE, charge the “liquidity taker” a commission for every share bought or sold, typically three tenths of a penny.  The exchange gives two tenths of a penny to the “liquidity maker,” called a liquidity rebate.  The exchange keeps the last tenth of a penny as profit.  Liquidity takers are traders that execute market orders against “resting limit orders.”  Liquidity makers are market makers that submit “resting limit orders,”.  A resting limit order is simply an order that is either an offer to buy below the current lowest ask price, or an order to sell above the current highest bid.

For example, on the NYSE, if the current highest bid for company C stock is $9.98, and the current lowest asking price is $10.01.  The market making firm, “MM,” enters limit orders to buy and sell C’s stock for $9.99 and $10.00 respectively, narrowing the spread.  If a liquidity taker, or “trader,” enters a market order to buy 50 shares of C from MM for $10.00, and another trader enters a market order to sell 50 shares of C to MM for $9.99, then MM will make $1 trading across the spread and $0.20 cents in liquidity rebates.  As more market makers enter the exchange, the spread gets tighter and tighter because market makers must compete for volume.  Furthermore, as the spread gets tighter, market makers generate substantially higher revenues through liquidity rebates rather than trading across the spread.

Under the make-or-take model, both market makers and traders benefit.  In 2008, market makers made over $21 billion dollars.[6]  In 2009, Jim Simmons and Ken Griffin (who both run liquidity-making hedge funds) personally took home $2.2 billion and $900 million, respectively.[7]  Traders also benefit by having a stable exchange rate though tighter spreads that create insubstantial differences between trades, even with high volume transactions.

Applying Make-or-Take Model to Bitcoin Exchanges
The Super-Exchange must employ the make-or-take model between bitcoin and local currencies, because employing the make-or-take model will maximize liquidity and increase volume.   Furthermore, the Super-Exchange will also increase revenue because an increase in liquidity also creates an increase in transaction frequency, which is when the Super-Exchange makes a profit.  For example, the Super-Exchange charges the trader 0.0003 bitcoins per bitcoin bought or sold.  The market maker receives 0.0002 bitcoins, and the Super-Exchange retains 0.0001 bitcoins as profit.

Note, the make-or-take model is only feasible because the Super-Exchange also holds the deposits of the market makers and traders.  Under the example of the make-or-take model the commission is only 0.0003 bitcoins, whereas transactions across the bitcoin network, without an intermediary, are typically 0.01 bitcoins or higher.  Thus, the commission to actually make the ownership transfer across the bitcoin network would be greater than the Super-Exchange’s commission, e.g., 0.0003 bitcoins.

Traders, or in this case depositors in the Super-Exchange, will enjoy tighter spreads and a much more liquid market with higher volume, rather than massive 1% jumps between two transactions executed seconds apart, often with a total transaction volume of less than 3 bitcoins.


[1]See Market Liquidity, Wikipedia, http://en.wikipedia.org/wiki/Market_liquidity, as of April 3, 2012.

[2] Mt. Gox Fee Schedule, https://mtgox.com/fee-schedule, as of April 6, 2012.

[3] CampBX FAQ, https://campbx.com/faq.php, as of April 6, 2012.

[4]Regulating High Frequency Trading: An Examination of U.S. Equity Market Structure in Light of the May 6, 2010 Flash Crash, Stephen Barnes, available at http://www.sec.gov/comments/s7-02-10/s70210-341.pdf, at 4; See SEC Concept Release on Equity Market Structure, 75 Fed. Reg. at 3607.

[5]Regulating High Frequency Trading: An Examination of U.S. Equity Market Structure in Light of the May 6, 2010 Flash Crash. at 5.

[6]Id. at 4.

[7]Id.

[Herodes]

What do you all think about bitstamps's trading fee schedule, is it better than MtGox's ?

https://www.bitstamp.net/fee_schedule/

To get to 0.29% comission fee at MtGox you have to trade a volume of 25000 btc for last 30 days = 1.45 mill USD with current prices.

To get to 0.2% comission fee at Bitstamp, you have to trade $150,000, and at current prices this equals 2.5K BTC!

So, the bitstamp fee structure seems to be significantly better than the structure at MtGox, and that's probably why the trade volume at Bitstamp has increased, at least for traders who care about the fees, this is quite the difference.

[myself]

What do you all think about bitstamps's trading fee schedule, is it better than MtGox's ?

https://www.bitstamp.net/fee_schedule/

To get to 0.29% comission fee at MtGox you have to trade a volume of 25000 btc for last 30 days = 1.45 mill USD with current prices.

To get to 0.2% comission fee at Bitstamp, you have to trade $150,000, and at current prices this equals 2.5K USD!

So, the bitstamp fee structure seems to be significantly better than the structure at MtGox, and that's probably why the trade volume at Bitstamp has increased, at least for traders who care about the fees, this is quite the difference.

u can trade on BFX at 0,1% 

[yucca]

I also hope MtGox will reduce their fees. Or maybe have user selectable (0.X% or $Y flatfee).

I'm currently writing a neural net based automatic Bitcoin trading platform integrating MtGox API.

I'm attracted by MtGox trade volumes, it makes for a rich dataset. but the fees need to stay competitive or that volume will diminish!

[casascius]

I'm totally fine with MtGox charging more money

They need the extra revenue in order to be able to service the exploding growth in bitcoin.

The more they charge, the more attractive it is for competition to spring up, which is good for bitcoin

The less they charge, the more vulnerable they are to things like legal challenges and causing disruption and killing market confidence due to being understaffed, and these aren't good for bitcoin.  The less likely they will be able to acquire resources and staffing to (for example) beef up their system so they can handle more trading.

The right price is set by supply and demand... it's not too high if lots of people are willingly paying it and keeping them busy.  The way I see it, their price could and should go up for bitcoin's benefit.

[robocoin]

What do you all think about bitstamps's trading fee schedule, is it better than MtGox's ?

https://www.bitstamp.net/fee_schedule/

To get to 0.29% comission fee at MtGox you have to trade a volume of 25000 btc for last 30 days = 1.45 mill USD with current prices.

To get to 0.2% comission fee at Bitstamp, you have to trade $150,000, and at current prices this equals 2.5K USD!

So, the bitstamp fee structure seems to be significantly better than the structure at MtGox, and that's probably why the trade volume at Bitstamp has increased, at least for traders who care about the fees, this is quite the difference.

Absolutely! I'd like to see how many MTG accounts have this low percentages..(proportional to all accounts) This statistic probably looks dramatic over the last 3 months.

-
I didn't expect the price to leave my scale so soon  You can look up your "pofitable volatility range" on the spreadsheets.


   >>> more in this spreadsheet

The whole point is that percentage based fee system introduces complications... Nothing wrong with a fixed% if you only go to the exchanges to buy or sell something and than leave. But in terms of trading, fixed% is not suitable for our super volatile market  

[Herodes]

I'm totally fine with MtGox charging more money

They need the extra revenue in order to be able to service the exploding growth in bitcoin.

The more they charge, the more attractive it is for competition to spring up, which is good for bitcoin

The less they charge, the more vulnerable they are to things like legal challenges and causing disruption and killing market confidence due to being understaffed, and these aren't good for bitcoin.  The less likely they will be able to acquire resources and staffing to (for example) beef up their system so they can handle more trading.

The right price is set by supply and demand... it's not too high if lots of people are willingly paying it and keeping them busy.  The way I see it, their price could and should go up for bitcoin's benefit.

No disrespect, but the MtGox API and their mtgoxlive.com service has been not working great for a long time now. If I were the owner of MtGox, that would be the first thing I fixed. We're already seeing bitstamp picking up volume, and unless MtGox stay on their toes, other exchanges will come and breath in their neck.