In 2017, in December, Bitcoin hit an all-time high of close to US $20,000. At the time, retail investors poured into Google search as a way to get into digital asset investing. 2018 saw the ICO bubble rapidly deflated. Bitcoin and cryptocurrencies fell out of favor with retail investors, as seen in Google trend search patterns.
With the initial interest in digital currencies falling, nascent digital assets fell more than 50%. The market, however, is still developing and evolving. One specific area that has seen growth is cryptocurrency derivatives like options contracts and crypto futures.
‘Derivatives’ is now a new buzzword in the world of digital currencies. Unlike regular cryptocurrency exchanges where you take your assets, cryptocurrency derivative exchanges allow you to trade your derivative products like Swaps and Futures as long as they have underlying crypto assets.
Derivative exchanges have become popular, taking a large share of trading volume. They track cryptocurrency prices, making them a useful tool for speculators who want to capitalize on price movements.
Derivatives are popular in traditional markets as well. Traders participate in options, futures, and other derivative markets as long as they derive their prices from products like precious metals, commodities, and equities. A recent report by BitMEX shows derivatives account for over 25% of total trade volumes, even if they are still relatively few in the market.
There are differences between trading in spot markets and trading in derivatives markets. Derivatives have the capacity to use leverage. Prices are derived from spot prices, and so the market is its instrument. They are also concerned with volatility and liquidity.
The underlying instrument may be stable, but if there is no liquidity, there could be a quick spike or crash in the price of the derivative.
Challenges common derivative exchange platforms face
BitMEX, a popular exchange based in Hong Kong, tracks Bitcoin against the US dollar. One of its limitations is that it only works with Bitcoin, and if a trade goes wrong, you can lose funds. Most of the products there expire every three months. The platform also applies a funding rate to positions every eight hours that the position is open. It can be difficult for a beginner to use. It’s also been known to have overflow issues where orders are rejected during times of high volume trading.
BaseFex is another platform that aims at offering user-friendly, reliable, and transparent service to traders all over the world. It supports different pairs allowing more options than BitMEX. The downside is the attached funding fee that may prove too high for the average trader.
Deribit offers both options products and futures. It, however, only operates in Bitcoin.
Other crypto derivatives exchanges such as OKEx and bitFlyer Lightning have one missing feature. The ideal crypto derivative exchange must solve liquidity problems. If liquidity is an issue, it becomes impossible to exit at a proper price.
In bitcoin markets, for instance, a lack of liquidity could be compounded by the fact that coin holders keep it as the value rises, unwilling to put the coins back on the market. They wait for their assets to accrue a certain profit and then flood the market, making it very volatile. Crypto derivatives exchanges must help with this and bring a degree of stability.
Levidge is an institutional grade crypto derivatives trading platform, based in Seychelles. On the platform, you can create contracts on anything provided it has a price feed including gold, silver, AAPL, QQQ, SPY, ETH, MCHI, AMZN, and BTC. That is, you can trade all asset classes with crypto. Its benchmarked at over 100,000 orders per second, which is a breakthrough in the industry. While most exchanges only take Bitcoin, Levidge offers many different coin options and cross collateral. Anyone can sign up on the platform except customers from the United States, Iran, North Korea, or any other country where the platform is prohibited.
Security and safety
All coins are stored on offline hard wallets, and no private keys are stored on the platform’s servers. To solve the issue of trading fees, Levidge offers up to 50X leverage for products, depending on their type, trade size, and the user tier. It charges between 0% and 0.5% for each order depending on each tier and product.
The platform works with a maker-taker model. If an order provides liquidity, it is charged different fees from other orders that take liquidity. The fee is typically a percentage of the match amount and is calculated per hour based on the user’s trading volume.
Levidge uses perpetual contracts that combine the idea behind equities trading with the leverage of futures trading. These contracts do not expire, roll, or need settlement like traditional futures and do not need margin lending. Traders can trade contracts like in equities trading. The goal is to ensure that the prices of the contracts are tracked and that the funding rate forms the base index price. Traders receive or pay a rate that increases with the spread between the contract and the index price. Contracts are settled in cryptocurrency.
Trading data and leverage
Derivatives go together with leverage, and that allows you to do more with less. Leverage, however, requires careful risk management- and Levidge helps with that. It offers the trader a cutting edge API that allows you access to market data in real-time and secure trading bots. Levidge also has a real time risk engine for multi coin collateral that enables high leverage.
Leveraged cryptocurrency derivative exchanges are on the rise by offering new avenues for growth for the exchanges and facilitating investor demand. They meet the needs of traders who want more sophisticated strategies for trade, and Levidge offers an option that is easy to manage, with the ability to leverage and supercharge your bets to new levels.