> ## Documentation Index > Fetch the complete documentation index at: https://docs.derivatives.ledig.io/llms.txt > Use this file to discover all available pages before exploring further. # Premiums and fees > Understand the upfront cost of an option, how writer offers are combined, and how premiums are divided. The premium is the price of the option. It pays for the right to make a specified exchange before expiry. It is separate from the tokens you must provide if you later exercise. In Ledig, the premium is paid in the token the buyer has the right to receive. For an illustrative USDC/cNGN market where exercise delivers USDC, the premium is paid in USDC. The later exercise payment is made in cNGN. ## Calculating the premium A writer offers an amount at a premium percentage. If the entire purchase fills at one percentage, the calculation is: **Gross premium = amount purchased × premium percentage.** For example, a right to receive 100,000 USDC at a premium of 1.8% costs 1,800 USDC. The buyer pays that amount when purchasing. The 100,000 USDC remains collateral for the right; it is not paid to the buyer at purchase. The premium is a cost for that option. A 1.8% premium on a market with 30 days remaining is not a quoted annual interest rate. It does not imply the same opportunity will be available next month. ## Why the quoted percentage can change with the amount Several writers can offer liquidity in the same market at different premiums. The protocol fills from the cheapest eligible offers first. Offers at the same premium are generally used in the order they were posted. A larger purchase can use more than one premium level: | Part of the purchase | Premium percentage | Premium paid | | - | -: | -: | | First 60,000 USDC | 1.5% | 900 USDC | | Next 40,000 USDC | 2.0% | 800 USDC | | Total 100,000 USDC | 1.7% average | 1,700 USDC | These figures are illustrative. Available offers can change before your transaction is confirmed. The displayed lowest premium is therefore not necessarily the price of your entire purchase. Review the total premium for your chosen amount. The purchase transaction includes a maximum total premium and a deadline. If the full amount cannot be purchased within those conditions, the purchase fails and its token transfers are rolled back. A failed onchain transaction can still incur a network fee. ## How the premium is divided The gross premium is split between the protocol and the writer whose offer was purchased. In the current protocol, the protocol fee is deducted from the gross premium. It is not an extra percentage of the full option amount added by the contract. **Writer premium = gross premium − protocol share.** When a purchase uses several writers, each writer earns the portion attributable to their own filled offer after the applicable fee split. The writer's earnings become claimable in the premium holding contract. They do not automatically appear in the writer's wallet. Use the fee terms for the market you are entering. The examples in this guide do not set Ledig's live fees, and fee rates from another Ledig product should not be applied to this protocol. ## What is paid at each stage | Stage | Buyer | Writer | | - | - | - | | Purchase | Pays the upfront gross premium | Earns a claim to the writer share of the premium | | Exercise | Pays the required settlement token and receives the exercised collateral token amount | Gives up the exercised collateral and earns a claim to the settlement tokens | | Unused expiry | Receives no premium refund; unused rights end | Can release the unexercised collateral | Network fees are separate. Purchases, exercise, claims, cancellations and withdrawals are onchain actions and may each require a transaction. Token spending approval may be a separate transaction too. ## Comparing the total cost Compare like with like: the same tokens, amount and available settlement route. A traditional currency reference rate or a bank quote may not be an executable price for the exact onchain tokens in your market. The agreed exchange rate alone is not the all-in cost of the hedge. Include the upfront premium, network fees and any separate cost of acquiring or redeeming the settlement token. A favourable exercise rate is not, by itself, a calculation of net profit. Continue with [the worked hedging example](/how-hedging-works) or [claiming writer proceeds](/claiming-proceeds).