Understanding Fees and Price Impact

Forge has a flexible fee system, where liquidity providers can choose from three different fee tiers per pair – 0.05%, 0.30%, and 1.00%. The selected fee tier impacts potential returns and risks for liquidity providers. The higher the volatility expected for a pair, the higher the fee tier a liquidity provider might want to choose to compensate for the potential impermanent loss.

Each swap on Forge incurs a fee proportional to the amount of the trade and the chosen fee tier. These fees are added to the respective liquidity pool and can be claimed by liquidity providers when they withdraw their liquidity.

Price impact refers to the change in price caused by a trade. On Forge, price impact is usually higher for larger trades and pools with less liquidity. Users can see an estimate of the price impact of their trade before they execute a swap. Reviewing this and adjusting trade size or waiting for more favorable market conditions if the price impact is too high is essential.