Cryptocurrency derivatives are reducing risk exposure for individuals and corporations in face of the volatility of cryptocurrencies. They were specifically developed to aid investors to protect their investment portfolio from losses. Hence, derivatives quickly become a great tool for traders to make profits out of the price movements of the underlying digital currencies. Let’s take a look into last year’s report and see how many billions have been traded PER DAY!
Based on TokenInsight’s annual report:
- $3 trillion in derivatives trading throughout the year
- $8.5 billion daily average derivatives trading volume
- 50% increase in annual derivatives trading volume – and it is expected that the total volume of futures trading will reach more than twice the spot trading volume in 2020!
If 2019 was the year of emergence for the Bitcoin and cryptocurrency derivatives, 2020 could be the year when derivatives are taking a more significant place within the industry.
- Singapore is already taking steps to regulate the market adequately.
- In Japan and South Korea, cryptocurrency exchanges are legal.
- And in the U.S Bitcoin derivatives have shortly become a firm favorite for institutional crypto-traders.
With the Bitcoin halving happening in less than two months, a new hype around the crypto market is expected. Analysts predict that the derivatives crypto market might experience even greater trading volumes. With more institutional investors around, we could even expect 2020 to be the year when the crypto derivatives scene takes center stage!
Cryptocurrency Derivatives Exchanges
Retail brokerage giants like BitMEX, OKEx, and Bybit served most of the trading volume throughout 2019. According to statistics, these exchanges are accountable for 85% of the sum of the trading volume for the entire market. Are they uncontested leaders in the market or there were no better choices at the time?
On BitMEX, futures contracts allow you to trade with leverage of up to 100x as it doesn’t require 100% of collateral in margin. To make it easier for traders, all margins are denominated in Bitcoin.
Anyway, BitMEX recently faced some issues. On March 12, the aggregated open interest on the platform fell 50% from $1.2 billion to $745 million and to $607 million on March 13. While it’s true that the whole market faced a downturn, most platforms were down only 27-43%. This incident put BitMEX in a questionable spot.
Better interest and better trading experience is expected on OKEx – one of the leading futures and spot exchanges. It currently offers perpetual swap, quarterly, bi-weekly and weekly futures contracts of 9 cryptocurrencies and slightly lower fees than BitMEX if you take into account the discounts for holding OKB (the exchange’s native token)
OKEx is not clean of incidents either. There were times when customers complained about being liquidated early due to the exchange’s lack of risk management. More than once, market buying/selling in large amounts happened on the platform, causing other people’s stop-losses/limit orders to be triggered and lose a lot of money in the process.
That’s exactly the reason why risk limit levels are needed. ByBit installed limits on each of its derivative contracts. The exchange is not as old on the market like BitMEX and OKEx, but it found its place at the top in a relatively short time. It allows traders from a few countries to participate in trading using up to 100x leverage with more risk-aware measures than their peers.
However, this doesn’t make ByBit perfect either. Trading a few thousand dollars at once, the limits are nothing to you. But, if you are an institutional-grade investor, you are going to place orders larger than that. That’s when hitting those limits can become costly. They are aware of it and there might not be changes made anytime soon as the residents from the US, Canada, or Singapore are not allowed to trade on the exchange so the big players are not really affected.
2020 upcoming launches
The first one that got our attention is Phemex – mainly because it’s founded by a team of ex-Morgan Stanley executives, it has a working product and it’s located in Singapore. Multiple cryptocurrencies supported and leverage3 trading up to 100x (as many others) Anyway, it carries the same disadvantage as ByBit: US citizens or institutions based in the US are not allowed on the platform. There’s no surprise that its liquidity has to suffer.
A second option could be Synthetix – Ethreum-powered, raised $30M in early 2018, and it’s based in Australia. It’s currently working as a non-custodial exchange and recently announced that they will offer derivatives trading. Not only cryptocurrencies but for many different asset classes: crypto assets, equities, and commodities. However, there is a ‘but…’. Being new in futures contracts space, they are planning to do a ‘soft launch’, initially supporting only fiat currencies (Euro and AUD), then BTC, and only after that other large-cap crypto tokens. All these with leverage capped at 10 to 20x. Being cautious is important but, will they ship these features fast enough to still be competitive in the space?
With all these, in 2020 there is still one platform with the potential of taking the derivatives market to the next level: C-Trade.com. It was founded by engineers, mathematicians, and statisticians with a passion for trading and over 10 years of experience in quantitative trading at global proprietary trading firms and investment banks. The company was registered in the British Virgin Islands and it’s following the mission of becoming the fairest, most user-friendly, and most reliable trading platform in the cryptocurrency derivatives space.
The exchange offers 150x leverage perpetual contracts. More than any of the current market leaders. Its matching engine is performing 20 times faster than the industry standard. The customer support is open 24/7 and known to have a fast response time (pretty important when we are talking money) Needless to say, all these features have the potential to assist derivatives trading up to institutional-level.
The platform is currently open for early access, you can opt to join through their website. It still has to overcome a few hops before proving itself in the space but, at the time, it seems to be one of the exchanges which gets to tick most of a trader’s boxes.
How do you evaluate a cryptocurrency derivatives exchange?
There are plenty of options to choose from. It might make sense to go with the one with the lowest trading fees. On a quick search, you’d realize that the current market leaders are dominating price-wise. But, as we’ve seen in the events highlighted above, the unregulated nature of the cryptocurrency derivatives trading environment opened up possibilities for some market makers to act against their own users. So, choosing one of these already comes with unforeseeable risks. How can you protect your investment?
There are 3 main characteristics you should be looking for:
Company background: You shouldn’t forget that the platform is just a software product of a company. Looking beyond a website or a mobile app, you’ll discover a legal-functioning (hopefully) organization tied up to a geographical region. What are the current regulations for cryptocurrency derivates in this region? What’s the reputation of the company? For how long are they activating on the market? These are the first questions you should ask yourself before even signing in for an account.
Founding team: Where there is a company there is a team. And the most important part of the team is the management, especially the founders as they have the most decision power. We don’t want to remember unfortunate events but, in the last decade of cryptocurrency, there were quite a lot and they all had something in common: the founders were scammers. It won’t hurt to extend your company research and look into the founders’ background. It can be a good way to water out the bad actors.
Functioning product: Going back to the product, usually a website or a mobile app (even if we’ve seen desktop apps too, for those who prefer it that way), you need to make sure that the software is functioning properly. Trading is a serious activity and the market is moving fast. There is no place for bugs or malfunctioning. Some companies are doing extensive beta testing before opening their exchange to the mainstream public. Most don’t, unfortunately, and you’ll end up as one of their early adopters to face unfixed issues. Make sure that there’s evidence that the company tests its software accordingly. Even if it’s a new platform, there are no excuses!
These are the 3 main points we used to evaluate the 2020 upcoming cryptocurrency derivatives trading platforms and, from the many options available on the market right now, we handpicked (in our opinion) the best three:
Choosing any of these three can be a good start for you in trading cryptocurrency derivatives in 2020. The year already shows great signs for crypto and it always pays to be early into the market. Don’t miss your chance again!