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Why does an exchange, which is based on basic market principles and claims to incorporate a supply and demand (maker vs. taker) model, have a fixed rate vig on
by jsprogrammer 12y ago
Why does an exchange, which is based on basic market principles and claims to incorporate a supply and demand (maker vs. taker) model, have a fixed rate vig on half the transactions? Shouldn't the vig float and have a mechanism which drives it towards zero?
- DavidSJ 12y agoAs I understand it, it's not a fee that the maker receives, it's a fee CoinBase receives, i.e. it's their way of making profit off of this exchange. The mechanism which could drive it to zero is competition from other exchanges.
- jsprogrammer 12y agoI get that it's CoinBase's fee (vig). I'm having a hard time understanding where the fixed 0.25% fee comes from other than: fee = desired_profit / (expected_transaction_volume * expected_average_transaction_value)
- jzwinck 12y agoSo you think the fee to remove liquidity should "float" in what way exactly? With per-customer tiered volume discounts like many exchanges offer to customers who trade enough in a given month? Or when you said "float" did you mean it should be variable across the entire exchange over time, but the same for all customers at any given time?
- jsprogrammer 12y agoLike any well functioning market, it should track the actual cost of goods, in this case, the actual cost of facilitating the transaction. I have a hard time believing that a fixed 0.25% has anything to do with the real costs. It doesn't appear that CoinBase is even making that argument.
- nurettin 12y agoI don't know much about basic market principles (by the looks of it they aren't very profitable for the host) but constant fee does make it easier to backtest automated trading strategies.