3 things every crypto trader should know about derivatives exchanges
In the past two years futures contracts have become widely popular among cryptocurrency traders and this became more evident as the total open interest on derivatives more than doubled in three months.
Additional proof of their popularity came as futures turnover surpassed gold, which is a well-established market with $107 billion in daily volume.
However, each exchange has its own orderbook, index calculation, leverage limits and rules for cross and isolated margin. These differences might seem superficial at first, but they can make a huge difference depending a traders’ needs.
Take notice of how CME holds the third position in Bitcoin (BTC) futures, despite offering exclusively monthly contracts. The traditional CME derivatives markets also stand out for requiring a 60% margin deposit, although brokers might provide leverage for specific clients.
Stablecoin versus token-margined contracts
As for the crypto exchanges, most will allow up to 100x leverage. Tether (USDT) orders are usually denominated in BTC terms. Meanwhile, the inverse perpetual (token margined) order books are displayed in contracts, which might be worth $1 or $100 depending on the exchange.
In addition to USDT-based contracts, OKEx offers a USDK pair. Similarly, Binance perpetual futures also offers a Binance USD (BUSD) book. Therefore, for those unwilling to use Tether as collateral, there are other options available.
Variable funding rates
Some exchanges allow clients to use very high leverage and while this might not pose an overall risk as liquidation engines and insurance funds are in place for these situations, it will pressure the funding rate. Thus, longs are usually penalized on those exchanges.
ETH futures 8-hour funding rate. Source: Bybt
The above chart shows that Bybit and Binance usually display a higher funding rate, while OKEx constantly presents the lowest. Traders need to understand that there are no rules enforcing this, and the rate may vary between assets or momentarily leverage demand.
Even a 0.05% difference equals 1% in additional costs per week, meaning, it is essential to compare the funding rate every once in a while, especially during bull markets when the fee tends to escalate quickly.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.