Quote from: aes1 on April 08, 2013, 09:59:10 PM

So, recently I've been thinking a lot about how to build a great Bitcoin exchange.

There are some topics I would love to hear your opinions on, and I'll start with:

Part I - transaction fees

Let's skip the question of deposit/withdrawal fees for a second, as I believe they are of secondary importance.

Many popular exchanges charge relatively high transaction fees: around 0.5% seems to be a common starting fee, and if you exchange a lot, it can go down to around 0.2%. btc-e.com charges 0.2% (no volume discount), and bitcoin-24.com charges absolutely nothing (they make their money from deposits/withdrawals, it seems).

Apart from bitcoin-24.com, it seems like a far cry from the real stock exchanges, which can go as low as 0.01% (apparently they have some sort of volume discount there, as well). I wonder why. Is the volume just not there?

As an aside, the volume discounts remind me of progressive taxation. What is the justification for them? Why not just add a fixed percentage fee to all trades, say 0.2%, like btc-e does? Even better, why not just add a fixed fee to all trades, say 0.1 USD (or 0.1 EUR, or 0.001 BTC)? From a software engineering point of view, a transaction is a transaction, and to broker, a bigger transaction is no more costly than a smaller one. I'm sure there's some psycho-socio-economical explanation this, but I'm waiting for someone more knowledgeable to articulate it for me.

It's interesting that we have an exchange with zero transaction fees (bitcoin-24.com). Do you think that's a good thing? Will it not lead to the proliferation of high-frequency-trading bots that consume your precious computational and bandwidth resources at the expense of real users?

(Even more interesting is that currently, there's a 18.99 USD spread in bitcoin-24.com, even though it's the second most popular market, according to http://bitcoincharts.com/markets/. I would have postulated that zero commissions - combined with a decent volume - would lead to zero spread and an infinitely efficient market, by some intuitive logic of mine.)

All in all, I'd like to hear your opinions as to what kind of features you're looking in an exchange and where the current exchanges are lacking. Especially if you're located in Europe and would be willing to trade in euros.

Volume discounts make sense to me, you are using their service a lot so they reward you. As for a fixed fee, that makes it awful hard on small traders if it's going to be high enough for the exchange to make decent money. I think a percentage makes more sense, the more money you are putting through, the more you pay.

I think MtGox charges too much, but Bitfloor is a good example of a fair fee system. They actually have a negative fee if your offer is not immediately accepted, which inventivizes offers not likely to be accepted right away so people get a better picture of the market.