Are you a retail investor? The key indicator to determine this is your trading costs. This article delves into the often overlooked but exorbitant trading costs, which, rather than market makers, are the true culprits in harvesting retail investors. This article is adapted and translated from a piece by Huang Shiliang, compiled and written by Deep Tide TechFlow. (Background: Why are institutional funds frantically buying Bitcoin while global retail investors remain 'unresponsive'?) (Additional context: To avoid being a retail investor in a bull market, here are seven survival rules in cryptocurrency you must know.) Retail investors are cut by trading costs, not by market makers. Retail investor is a term of merriment in the cryptocurrency circle, as almost all friends claim to be retail investors. Setting aside the joking aspect, we should indeed strive to avoid being a retail investor, or we may find ourselves truly harvested. Self-awareness is valuable; how can one determine if they are a retail investor? This might be a good question. I believe there is one indicator that can answer it: your own trading costs. The higher the trading costs of the trading tools, products, and strategies you use, the more likely you are to be a retail investor. In our investments, nominal returns often derive from a few percentage points of market movement, while trading costs, including fees, slippage, funding rates, gas fees, etc., are certain expenditures that we often overlook. These certain costs can frequently exceed the potential nominal returns. Costs must be paid, but returns are filled with uncertainty. Any trading actions that do not consider these certain expenditures are retail investor behaviors. Buffett once mentioned a hypothetical case at a shareholders' meeting, where a wealthy family could naturally grow their wealth without doing anything. However, once they hire an analyst, broker, or fund manager to manage their assets, these individuals would diversify the family's investments, continually trading this and that, causing the family's assets to gradually dissipate in fees. The result is enriching others while losing money themselves. Old Buffett might have been referring to Bill Gates, who hired a financial team that ended up selling off most of his Microsoft stocks. There are also many similar studies in academia, such as analyzing why tens of thousands of retail accounts on the Shanghai Stock Exchange lost money during a bull market, which essentially boils down to their principal becoming fees and stamp duties paid to the exchange and the state. To avoid being a retail investor, one must always ask before any trading operation: What is the total cost of this operation? And again, is there a lower-cost operational strategy? The cryptocurrency space has various trading products and strategies. I believe the highest trading cost rank belongs to deposits and withdrawals; you know, this cost is extraordinarily high, not only because of high trading fees but also due to the significant risks involved, like being frozen out or even arrested. Tether announced a profit of 13 billion USD in 2024, and I guess more than half of it comes from the deposit and withdrawal commissions contributed by retail investors (the other half is likely from the interest earned on USD collateral). So, don't mess around with deposits and withdrawals. Common trading products include spot, perpetual contracts, and options. Trading methods include on-chain DEX and CEX. Various explicit fees are easy to understand; spot trading generally incurs fees of 0.1% to 0.2%, and contracts are about 0.01%, but these are merely matching fees. Another major part of trading costs is implicit. For instance, the funding rate of perpetual contracts is subject to luck, while the time cost of options is almost at a terrifying level. Major cryptocurrencies' perpetual contracts generally have funding rates exceeding 10% annually, while altcoins could exceed 30%. However, sometimes this can still be profitable; what is certain is that the long-term holding cost of contracts is extremely high, especially for altcoins. If you are not a professional funding rate arbitrageur but are trying to trade contracts instead of spot, then you are undoubtedly a retail investor. Options are similar; the trading and holding costs of options are much higher than those of perpetual contracts. However, I am not an expert; I have held small amounts of ETH calls and puts a few times and ultimately found that I lost everything. The cryptocurrency space also has some fancy strategies; common ones in exchanges include grid trading, dual-currency wealth management, and copy trading. Almost all CEXs' fancy strategies have extraordinarily high trading costs. I once thought grid trading bots were a good product; I have used them multiple times, but in reality, they are just tools for CEXs to extract fees from users. I have never seriously explored dual-currency wealth management, but I always feel its costs must be extraordinarily high; otherwise, it would be impossible to offer annualized returns of 100%, as market makers are definitely guaranteed profit. I asked ChatGPT about it, and its essence is a kind of option; I estimate that the cost of directly buying options would be lower. I am too lazy to research it. CEX also has a lot of leveraged trading models, and whenever leverage is involved, trading costs increase even more. The interest expenses are terrifying; it is a friend of time, but holding leveraged positions is not a friend of time. I am most impressed by those who leverage heavily to trade real estate, taking pride in owing money to banks, believing that the more they owe, the more honorable they feel. Truly impressive. Binance announced revenue of 16 billion USD in 2024; remember the massive crash at the beginning of 2025? Everyone said it was due to Binance realizing its profits. Binance and Tether together accumulated nearly 30 billion USD in annual revenue in 2024; this is indeed the trading cost of retail investors. We don’t know how much we earned, but they have made nearly 30 billion. The costs of on-chain trading products and strategies are even more complicated. The most ordinary swap trading in DEX incurs various strange costs. Gas fees and trading fees are considered explicit. Gas fees are non-negotiable; they are not fixed and vary widely, which is an inevitable price for on-chain activities. The swap trading fees also vary depending on the liquidity pool route; for example, Uniswap has a 0.3% fee, and there are also 0.01% fees. With Uniswap V4 allowing customizable pool fees, there even appeared pools charging a bizarre 99% fee. Besides the explicit gas fees and trading fees, a greater cost in DEX trading is implicit. The largest implicit cost is MEV sandwich attacks; if your slippage setting is too high, you are done for and will have to pay a high slippage tax. Normal slippage can be terrifying when trading in small liquidity pools, especially for small coins, a slippage cost of 10% is common. The strategy for grabbing IDOs can incur outrageous slippage costs, and paying 50% is also common. In the past two years, the trading costs of the most popular pump.fun have been ridiculous; building a pool requires everyone to pay money, and trading incurs taxes, especially since these meme coins are typically quick in and out, requiring trades every few minutes, where a 0.5% trading fee can swiftly eat away at your principal. Meme coin traders are undoubtedly high-friction traders. Now, almost all swaps have implemented cross-chain swaps, which brings complex cross-chain fees; you need to pay two transaction fees and bridge fees simultaneously. I once relied on Layerzero to arbitrage price differences between Unichain and ETH L1, but later calculated that Layerzero actually took the biggest cut. Air-dropping is no longer a hot topic; this strategy incurs huge trading costs. Air-dropping is a typical 'one general achieves success while thousands of bones are broken' strategy. It is a typical project party's strategy to sell coins by absorbing users' trading costs. I feel that on-chain gameplay is even easier for users to be treated as fee mining machines compared to CEX, and the implicit costs on-chain are higher than ...