Maker vs Taker Fees: Keep More of Your Edge

Maker vs taker fees decide how much of a trade’s profit the exchange keeps. Most retail algorithmic traders know the two numbers exist. Fewer have worked out which one their strategy actually pays. The gap between them looks small on the fee page. Multiplied by a year of trades, it can be the difference between a strategy that works and one that does not. This post explains what the two fees are and why turnover makes them matter. It covers when a limit entry is worth the risk of not filling. It ends with how to put the correct number into a backtest.

What Are Maker vs Taker Fees?

Maker and taker fees are the two prices an exchange charges for the two ways of trading. A maker places an order that rests in the order book. It adds liquidity for others to trade against. A taker places an order that fills immediately against a resting order. It removes liquidity.

Exchanges want deep order books. So they charge makers less. On Binance futures, the standard tier is 0.02% for makers and 0.05% for takers. Spot markets on most exchanges run higher. Coinbase’s entry tier charges 0.40% to makers and 0.60% to takers. Investopedia covers the history of the model. The exact figures change, and every exchange publishes its own fee schedule. The structure does not change. Resting orders pay less. Immediate orders pay more.

The order type is what decides which fee you pay. A market order is always a taker order. A limit order that rests and later fills is a maker order. A limit order placed at a price that fills straight away is a taker order, despite being called a limit. That last case catches a lot of people out.

Why the Fee Tier Decides Whether a Strategy Works

A fee looks small per trade. Strategies do not make one trade. They make hundreds.

Take a strategy that opens and closes 500 positions a year. Every position has an entry and an exit. That is 1,000 fills. At a 0.05% taker rate, each round trip costs 0.10% of the position size. Over the year, that is 50% of the average position size paid to the exchange in fees. At a 0.02% maker rate, the same strategy pays 20%. The difference is 30% of the average position size. That is not a rounding error. It is often larger than the strategy’s annual return.

Now set the profit target against it. If the strategy’s average winning trade gains 0.30% gross, the taker fee eats a third of it. The maker fee eats about 13%. The same signals, the same market, the same risk. One version keeps twice as much of each winner.

This is why fee drag scales with turnover. A swing strategy that trades twice a month barely notices the difference. A strategy that fires several times a day lives or dies on it. Our guide to transaction cost modelling covers spread and slippage alongside fees. The fee tier is the part you can control by changing the order type.

How Much Turnover Is Too Much?

There is a simple way to find your own number. Take the strategy’s gross profit per trade from the backtest. Divide the round-trip fee by it. The result is the share of each trade’s edge that goes to the exchange.

A strategy netting 1% per trade and paying 0.10% in fees gives up 10%. That is fine. A strategy netting 0.20% and paying 0.10% gives up half. That is fragile. Any drop in the average win, or any increase in slippage, pushes it to zero. A strategy netting 0.08% and paying 0.10% was never profitable. The backtest only looked positive because it skipped the fee.

Run this check before anything else. If the share is above a third, the strategy needs either a lower fee or a larger average trade. Switching to maker fees is the quickest way to get the first. Trading a higher timeframe is the usual way to get the second.

When Does a Limit Entry Change the Edge?

Moving from market to limit orders cuts the fee. It also changes which trades you get. That second effect can be bigger than the first.

A resting limit order fills when price comes to it. For a mean reversion strategy, that is the plan anyway. You are buying a dip at a level. A limit order at the level is the natural order. You save the fee and often fill at a better price than a market order would have.

For a breakout or momentum strategy, the opposite is true. The best breakouts do not pull back. A limit order below the breakout price misses them. The trades it does fill are the ones where price came back, which are the weaker breakouts. You save the fee on every trade and lose the strongest winners. Traders call this adverse selection. The order book fills you when the market is going the other way.

So the question is not whether limit orders are cheaper. They are. The question is what the saved fee is worth against the missed trades. Write it out as a sum. Fee saved on every fill, plus the better average price, minus the profit on the winners that never filled. For mean reversion, the sum is usually positive. For momentum, it is often negative. Our guide to order types walks through the mechanics of each order.

One practical middle ground is a limit order with a small offset. Place the entry a few ticks above the signal price for a buy. It still rests, so it earns the maker rate most of the time. It is close enough that momentum trades usually fill. Backtest the fill rate before trusting it.

Which Fee Tier Belongs in the Backtest?

Use the taker rate unless you can prove the strategy pays the maker rate. That is the safe default. A backtest built on maker fees that executes at taker rates in live trading will underperform by exactly the difference. It is one of the most common reasons backtest vs live results diverge.

Three rules keep the number honest.

Stop losses are taker orders. Even a strategy that enters with resting limits will exit with a stop. Stops trigger market orders. If that is how the strategy is built, model the entry at the maker rate. Model the exit at the taker rate.

Match the tier to your real volume. Exchange fee pages show discounts for high monthly volume or holding the exchange token. Use the tier your account actually sits in, not the lowest one on the page.

Test both versions. Run the strategy with market entries at the taker rate. Run it again with limit entries at the maker rate. Compare the trade count as well as the return. If the limit version has far fewer trades, the missed fills are doing more work than the fee saving.

How to Apply Maker vs Taker Fees in Arrow Algo

Arrow Algo’s visual builder makes the order type a setting on the action block, not a separate piece of logic. When you add a Buy, Sell, Future Open or Future Close block, choose Market or Limit as the order type. Choosing Limit adds a price input to the block. Connect a price from your data or indicator blocks to set where the order rests.

That means you can build the comparison from the previous section with two copies of the same strategy. Keep every signal block identical. Set one copy’s entry block to Market and the other to Limit at the signal level. Set the commission in the backtest settings to match the exchange and tier you plan to trade on. Run both on the same exchange data and the same date range.

Read three numbers from each result: net return, trade count and average profit per trade. The limit version should show a higher average per trade from the lower fee. If its trade count is much lower, the strategy is losing its best entries to the order book. If the trade count holds up, the fee saving is real and the limit version is the one to take forward.

For exits, keep stop-loss blocks on Market. A stop that does not fill is worse than a stop that pays the taker fee. Use Limit on take-profit blocks, where a missed fill only means a slightly later exit. Arrow Algo applies the commission to both the entry and the exit of every simulated trade. The fee drag shows up in the backtest before it shows up in your account.

What Are the Key Takeaways?

Maker fees apply to orders that rest in the book. Taker fees apply to orders that fill immediately. Market orders are always taker.
The gap between the two is small per trade and large per year. A 500-trade strategy can pay 30% of its average position size extra in taker fees.
Divide the round-trip fee by the gross profit per trade. Above a third, the strategy needs a lower fee or a bigger average win.
Limit entries suit mean reversion. They can cost momentum strategies their best trades through adverse selection.
Backtest at the taker rate by default. Use maker only where the strategy genuinely rests orders, and model stops as taker.
In Arrow Algo, the order type is a setting on the action block. Test the Market and Limit versions side by side before going live.

Disclaimer: This content is for educational purposes only and does not constitute financial advice. Trading involves significant risk and you should only trade with capital you can afford to lose. Past performance is not indicative of future results. Always conduct your own research before making any trading decisions.

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