Light.CX is now additionally incentivizing traders by paying them maker fees instead of the other way around, as one of the few trading platforms in the cryptocurrency space to do so. In other words, instead of having traders who are providing liquidity to the platform pay minimal fees, Light.CX is now paying you for creating maker orders. In addition, by reducing the Light Option Contract from $100 to $10, the platform hopes to become more accessible to retail traders.
Back to Basics: What You Need to Know
Every trader has at least heard of maker and taker fees. Luckily, nowadays you don’t have to be an economist to trade assets, especially in the cryptocurrency space, which means many are either rusty on many basic terms or outright have no idea what they actually are. Let’s brush up on some definitions first.
- Market orders. When an average person thinks about trading assets, they tend to think of market orders first. In short, the trader sends the order to the exchange, who processes it at the current market price. Of course, since the exchange is not always immediately able to process that order, there is always a slight risk that the price will not be the same at the moment of execution as it was when the trader actually made it, but as a rule, traders accept that risk willingly. Additionally, these orders are filled up relatively quickly, especially compared to:
- Limit orders. Traders who want more control over the price of the asset they’re buying or selling will opt for limit orders rather than market orders. Before placing a purchase order, buyers are required to set a maximum buying price or minimum selling price. This way, there is no chance of the price going beyond what you can afford and potentially plunging you into debt — you simply won’t go through with the purchase if it does.
- Maker fees. When a trader creates a buy order and waits for it to be matched (for example, in the case of limit orders), they become the maker. In other words, they’re providing depth, or liquidity to the platform. In truth, being the maker is not an ideal position, as these orders are rarely filled very quickly. On the other hand, every platform wants increased liquidity, so makers are often incentivized to keep doing that through extremely low fees, or (in the case of Light.CX) by being paid instead of charged.
- Taker fees. If the trader’s order is immediately executed against an existing order — which is usually a good thing for the trader — they’re effectively depleting the platform’s liquidity, which happens mostly in the case of market orders. For the platform, this is far from ideal, so the trader is disincentivized by having to pay a taker fee.
- Basis points (BPS). To understand the amount Light.CX pays in maker fees, you need to understand basis points first. This is a common unit of measurement for percentages in finance, and a single basis point is 0.01%, or 1/100th of 1%. The platform currently pays 10bps, or 1/10th of 1% in maker fees.
What Light.CX Does Differently
Light.CX is, for now, an options trading platform, especially focusing on all-or-nothing options. Simply put, a trader decides whether a certain asset will be above or below a price at a certain time (in the case of Light, that time is five minutes from now). Traders who believe it will finish above the price buy the option, otherwise they sell it. Those who predict correctly get the value of the asset, while those who don’t lose their stake and gain nothing.
Of course, in reality, it’s slightly more complicated than that. But like any other platform, Light.CX needs liquidity to thrive, and believes makers who supply them with liquidity should be rewarded. As soon as the contract is settled, the maker will receive 10bps of the contract’s payout value credited to their account. Since the platform itself bases its whole business model upon a 1% fee from winning orders, the maker fee is effectively taken from that and given back to the community.
However, the maker fee is not the only thing designed with customer satisfaction in mind: the platform as a whole offers fixed risk, fixed reward, meaning even if you lose, there is no way to lose anything beyond what you’ve staked. Conversely, winning means your profits won’t go to the moon, as the crypto space is fond of putting it, but in the ever-volatile cryptocurrency market, a little bit of security can go a long way.