The regular readers already know that one of the most interesting options of OnederX is negative fees for the takers (and not the makers as it is with most classical exchanges).

Sometimes, this feature of OnederX raises questions and starts disputes in the support channel, therefore, we have decided to discuss it more elaborately in this expanded article.

What is it about?

Let us first remind you of what it is exactly all about.

On OnederX, the structure of exchange commissions is radically changed. We have a negative commission for the takers, not for the makers!

This is how it looks right now:

Taker = -0.01% Maker = 0.06%

The most common logic behind these numbers is as follows: most of the makers on modern exchanges are robots that already earn on the spread. It will be logical that they pay a commission. So, we naturally come to the slogan of our exchange:

Rebates are for people, not for robots!

Brief terminology explanation

Before moving on, let us define the terms that occur in our text and which may be unclear to beginners.

Rebate in trading is a certain discount, which is fulfilled through the return of a part of the spread or commission to the trader. Regardless of whether the trade is profitable or not, the trader still receives back a portion of the funds paid to the exchange for the trade. Then all exchanges work on the maker-taker system of commissions, offering for them a difference in trading commissions: - You immediately become a ‘maker’ when you place an entry order (limit or stop). - The ‘taker’ is the person who places a market order that gets instantly filled with the liquidity available at the market price level. During the trading process, at each point in time, there is a queue of unfulfilled orders for sale (offers) and for purchase (bids) in the database of the exchange. It has the following form: offers are located above (until there are those who want to buy them so expensively), and below there are bids (for which there was no one who wanted to sell so cheaply). As a rule, there is a gap between them (spread). At the top of the spread there is the best order to sell, at the bottom — the best order to buy. These orders form the so-called order book.

How negative fees work in reality

Now that the overall picture is more or less clear, let us try to answer the typical questions of skeptics, which are sometimes heard, about negative commissions for takers that OnederX implements.

Since your questions were the starting point for writing this article, for clarity, we suggest giving answers in a real-life question-answer format.

Why does this have to work at all?

At least, it is noteworthy that on the basis of this model, the exchange has been operating for six months. It makes a profit (which, by the way, we generously share with our traders as part of the OnederX Trading Challenge auction).

Are you sure your order book will not become empty?

We see that on many crypto exchanges the makers have negative commissions, and the takers have positive commissions. This is understandable — exchanges want more liquidity and want to encourage participants to ‘fill the book’.

But a positive commission for a maker does not mean that the exchange will not be able to survive. There are lots of exchanges, on which both commissions are positive (on classical exchanges, as a rule, commissions for makers and takers are similar). Nevertheless, people trade on them, and we, in comparison to them, have only reduced one of the commissions (the ‘takers’).

In the confirmation of these words, on the list of BATS exchanges one can find already existing classical exchanges that function with a negative commission for the takers and a positive one for the makers, and there are no problems with that!

So, is it more profitable to open market orders on your exchange than limit orders?

In case the prices are similar — yes, this statement is true.

Your model does not work in case you replace limit orders with market ones in the MM robot, it will continue to trade and the profitability will even increase. But the books will empty out — yes, because market orders are always better than limit ones.

First, it is clear that our order books are not empty although we have been working like that for half a year.

Secondly, this assumption about replacing orders is generally wrong. Because market orders are sent in the opposite directions of the limit ones nullifying the spread.

If someone thinks it is not so we suggest checking it on your own as a homework.

This scheme will be in general not profitable for the makers…

We think that anyway the market will balance it all out. Let us think about this logically.

The maker can always place his order simply including the commission in his price, i.e. expanding the spread a little. Therefore, in the worst case the spread will grow by just a few price increments (the current commission on Onederx is two price increments). However, the exchange will still continue to function.

Judging by the said above it looks like there are no advantages for the taker:

- with a positive commission he gives the commission to the exchange;

- with negative fees all his rebate goes to the taker who was forced to place orders with a larger spread.

In fact, this is not the case, because different market makers may have different views on a fair price. Let us illustrate it with an example:

Suppose there are two makers, A and B, and their models tell them that the fair price is 4,000 and 4,001, respectively.

If the exchange offers rebates for the makers, the first maker (A) can place his orders with the minimal spread, for example, 4,000 for a purchase and 4,001 for a sale. The second taker, intending to send his orders, is forced to support taker A — he knows that, despite the fact that the fair price is 4,001, he will be able to make a profit (due to rebates) standing at 4,000 or at 4,001. He cannot punish the first taker, because, taking into account the taker’s positive commission, it will not be profitable for him.

Now consider the same two makers but on an exchange with a positive commission for the makers. Then maker A can no longer send his bids with the smallest spread, he is forced to make some gap, for example, place a buy at 3,999 and a sell at 4,001. Maker B goes from his price, sends 4,000 for purchase and 4,002 for sale.

Thus, trader C, who comes to the exchange, in both cases receives the smallest spread, but in the second case (if there are rebates for the takers), he will also receive his deserved rebate.

Hence, our conclusion: with positive commissions, the makers have the opportunity to compete in assessing the future price, and the takers get the best offers.