3 Things Every Cryptocurrency Trader Should Know About Derivatives Exchanges

In the last two years, futures contracts have become very popular with cryptocurrency traders and this became more evident when Total open interest on derivatives more than doubled in three months.

Another proof of its popularity was that futures turnover exceeded gold, which is a well-established market with a daily volume of $ 107 billion.

However, Each exchange has its own order book, index calculation, leverage limits, and cross and isolated margin rules.. These differences may seem superficial at first, but they can make a big difference depending on the needs of the traders.

Open interest

Aggregate open interest of futures (blue) and daily volume (black). Source: Bybt

As shown in the above graphic, total open interest on futures went from $ 19 billion to $ 41 billion current in three months. In the meantime, daily trading volume has exceeded $ 120 billion, up from $ 107 billion for gold.

Although Binance futures have the largest share of this market, several competitors have relevant open volumes and interests, like FTX, Bybit and OKEx. Some differences between exchanges are obvious, as FTX charges perpetual contracts (reverse swaps) every hour instead of the usual 8 hour window.

Open interest of BTC and ETH futures, in USD. Source: Bybt

It should be noted how CME ranks third in Bitcoin (BTC) futures, despite exclusively offering monthly contracts. CME’s traditional derivatives markets are also notable for requiring a 60% margin deposit, although brokers could provide leverage for specific clients.

Stablecoin vs. Margined Token Contracts

As for cryptocurrency exchanges, most allow a leverage of up to 100 times. Tether (USDT) orders are usually denominated in terms of BTC. In the meantime, the reverse perpetual order books (marginalized by tokens) are displayed in contracts, which can be worth $ 1 or $ 100, depending on the exchange.

Entry of orders for perpetual futures of USDT in BTC. Fountain. Source: Bybit

The image above shows that entering USDT futures orders on Bybit requires an amount denominated in BTC and the same procedure takes place on Binance. On the other hand, OKEx and FTX offer users a simpler option that allows the customer to enter an amount of USDT, while automatically converting to BTC terms.

Entry of orders for perpetual futures of USDT in BTC. Source: OKEx

In addition to USDT-based contracts, OKEx offers a USDK pair. In the same way, Binance perpetual futures also offer a Binance USD (BUSD) book. Therefore, for those who are unwilling to use Tether as collateral, other options are available.

Variable financing rates

Some exchanges allow clients to use very high leverage And, although this does not pose a general risk, since there are settlement engines and insurance funds for these situations, will pressure the financing rate. Therefore, longs are often penalized on those exchanges..

8 hour funding rate for ETH futures. Fountain. Source: Bybt

The graph above shows that Bybit and Binance typically show the highest funding rate, while OKEx consistently features the lowest. Traders must understand that there are no rules that dictate it, and the rate can vary between assets or momentarily leverage on demand.

Even a difference of 0.05% equates to 1% additional costs per week, which means that it is essential to compare the financing rate from time to time, especially during bull markets, when the rate tends to increase rapidly.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. All investments and operations involve risk, so you should do your own research when making a decision.

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