As derivative exchange becomes progressively popular and comprises an ever-larger share of cryptos’ global trading volume more and more cryptocurrency users are taking an interest in derivatives and leverage trading, a trend that will continue in the future.
Cryptocurrency derivatives are financial products that track the price of cryptocurrencies but are not the actual asset; in short, they are the perfect tool for traders who wish to capitalize on price movements and possibly amplify their gains through the use of leverage. Derivatives are an incredibly popular investment in traditional finance as well: professional traders often participate in futures, options, and other derivatives markets, which derive prices from conventional products such as commodities, equities, or precious metals.
It should be noted that trading derivatives is a completely different experience than trading in spot markets: derivatives exchanges typically offer leverage, which makes the derivatives market more prone to volatility. Understanding how leverage and derivatives work is extremely important for traders, but so is the correct choice of platform. In this article, we compare a few platforms that allow their users to trade crypto derivatives: the major players, such as OKEx and BitMEX, but also up and coming platforms that offer interesting features, such as Phemex and Deribit.
It is presently the most popular peer-to-peer cryptocurrency derivatives trading platform, it is owned by HDR Global Trading Limited, and is based in Seychelles with branches in the Bermuda and Hong Kong. It allows its users to buy futures and perpetual contracts and offers many advanced trading options, such as margin trading, through a wide variety of order types; this makes BitMEX a great instrument for knowledgeable traders
As mentioned earlier BitMEX is a P2P Crypto trading platform, thus it allows its users to buy digital currencies (Ethereum (ETH), Bitcoin Cash (BCH), Cardano (ADA), EOS (EOS), Litecoin (LTC), Ripple (XRP), Tron (TRX)) using Bitcoin and to trade financial products such as Perpetual Contracts, Future Contracts, Up Contracts and Down Contracts with up to 100x leverage among themselves. BitMEX offers a wide variety of orders (Market Orders, Limit Orders, Stop Orders, Take Profit Orders, and Hidden Orders) that will satisfy experienced traders but that may be a little confusing for beginners, which is why we recommend taking a good look at their tutorials before starting to trade on BitMEX.
BitMEX stores all the Bitcoins on a cold storage multi-signature wallet to guarantee maximum protection for their customer’s funds. Whenever a withdrawal request is placed by a customer, it is manually verified by two BitMEX employees before approval. Furthermore, BitMEX doesn’t store private keys on its cloud-based servers.
BitMEX deducts a fee for every trade made on a maker/taker model. The trading fees depend on the type of order (contracts/futures) and the chosen cryptocurrency. For Traditional Futures, when trading Bitcoins, BitMEX rebates the maker trader 0.025% and charges 0.075% to the taker. It is also important to note that BitMEX fees apply to the entire leverage, not just the margin, a feature that has been criticized in online forums from time to time.
BitMEX doesn’t accept Fiat based payments, which could be considered an entry-level barrier for beginners. Also, BitMEX accepts only a limited number of cryptocurrencies, and, although their selection is still reasonable, it should be noted that Deposits/Withdrawals can be made only using BTC. More importantly, BitMEX has received criticism in the crypto community on several grounds: significant liquidations have been controversial (with some users even reporting being wrongly liquidated) and these recounts have given room for allegations of insider trading, that, in all fairness, have yet to be substantiated. Furthermore, users have lamented issues with regard to the platform’s stability and performance during peak trading times.
OKEx is a popular digital asset trading platform which offers spot, futures, and derivatives trading of cryptocurrencies, it was launched in 2017 and is based in Hong Kong. It is presently one of the top digital asset exchanges by trading volume and by a variety of offers in terms of token and futures trading pairs.
The derivative products offered in OKEx are futures, which enable traders to apply large amounts of leverage (up to 20x). In OKEx users can trade (and also buy with Fiat) more than a hundred thirty coins and tokens (among many: BTC, ETH, USDT, ETC, 1ST, AAC, ABT, ACE, ACT AE, etc.) for spot trading and nine coins for derivatives. The OKEx trading platform is aimed at professional traders and provides several useful features, such as different order types (limit, advanced limit, market, stop-limit, trail, iceberg, TWAP), leverage trading, Fiat deposits in two currencies (USD and CNY), etc.
OKEx, similarly to BitMEX, supports a few key features that guarantee security for its users: 2-factor authentication, mobile verification codes for withdrawal, changing password and security settings, and Anti-phishing codes with every email from OKEx.
Light trading fees are a major strength of OKex and the exchange showcases among the lowest in the cryptocurrencies market. Fees are tiered based on average 30-day trading volumes but are relatively low even at their upper end. The highest trading fees payable for low volume accounts are a 0.15% maker fee and a 0.2% taker fee. This drops as low as 0.02% and 0.05% for makers and takers fees respectively.
Some have remarked that OKex feels unfriendly towards non-Asian users, especially during the necessary verification process. Moreover, it should be noted that Futures trading is recommended for experienced traders and should be well understood by beginners before starting to use OKex. It is also worth mentioning that in the past OKex has admitted to problems with wash trading (artificially inflated trading volumes).
Founded in 2019 and led by over 8 former Morgan Stanley Executives, Phemex is the latest cryptocurrency derivatives trading platform. Phemex sports a “User-Oriented” approach to developing its features and offers incredibly high performance by the standards of the crypto industry. Phemex also allows its users to trade contracts not backed by crypto assets, and promises, in 2020, to accommodate derivatives of traditional financial products, such as S&P 500 stock indexes, interest rates, FOREX, commodities, metals, energy, etc. Comparably to BitMEX, deposits and withdrawals can be made only using BTC, which can be leveraged (up to 100x) for all the previously mentioned products.
Phemex’s most remarkable characteristics are technical: <1ms latency speed, >300k transactions/second, >99.9999% availability, which put Phemex on par with traditional financial exchanges. Phemex will also support FIX API and sub-accounts, commonly requested features by crypto users.
Asset security is taken very seriously at Phemex, the platform built its own Hierarchical Deterministic Cold Wallet System, which assigns an independent deposit address to each user so that all assets are kept in cold wallets. Moreover, similarly to BitMEX, BTC collection and transfer are all conducted via offline signature with strict human scrutiny.
Phemex establishes a 0.015% maker fee and a taker fee of 0.065% plus 0.05% fee for the platform, which is on par with the rest of the industry.
Currently, Phemex does not allow Fiat currencies, creating an entry barrier for beginners. Also, similarly to BitMEX, Phemex accepts only a limited number of cryptocurrencies, and it should be noted that Deposits/Withdrawals can be made only using BTC.
Deribit is a Bitcoin trading platform based in the Netherlands that enables futures and options trading. Similarly to BitMEX it supports Bitcoin derivatives, hence the name Derivatives + Bitcoin, and allows traders to take advantage of up to 100x leverage when trading Bitcoin futures.
Deribit offers Future contracts priced at $10 with the default leverage of 10x but up to 100x for BTC Futures. In terms of Bitcoin options, Deribit’s offer is relatively small, in terms of deposit and withdrawal options you can only transfer BTC to and from your account.
The exchange clearly strives to be technologically advanced and allows users to trade via their trade matching engine with less than 1MS latency. Deribit also integrates with trading bot software such as HaasOnline, BotVS, and Actant.
Deribit does not require verification, users of the platform merely have to register to open their account and they can immediately transfer BTC to their account and start trading. As for the security of the platform, Deribit makes use of cold storage to secure approximately 95% of user funds.
Futures contracts are priced at $10 per contract, there is also a maker fee of 0.02% and a taker fee of 0.05%. For options trading, the underlying fee is 0.04% per option contract for both makers and takers. Other applicable fees include Settlement and Liquidation fees.
Being a European exchange based means that Deribit is not regulated, which could be the source of normative problems in the future. Other limitations include that Deribit supports only BTC and not Fiats.
To sum up, BitMEX and OKex are the current leaders in the crypto derivatives industry. However, customers of both these platforms have been on the lookout for alternatives, especially customers of BitMEX who have felt wronged in past significant liquidations. But, Phemex and Deribit certainly offer valuable alternatives: both present interesting, unique, and innovative features in addition to very high ceilings. Because of these reasons, it is entirely possible that the crypto derivatives playing field may become increasingly competitive, accommodating multiple big players each with their specific user base.
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