3 things every crypto trader should know about derivatives exchanges


For the past two years, futures contracts have been rampant among cryptocurrency traders, and this became more apparent when the total open interest in derivatives more than doubled in three months.

Further evidence of their popularity was that futures sales outpaced gold, an established market with a daily volume of $ 107 billion.

However, each exchange has its own order book, its own index calculation, leverage limits and rules for cross and isolated margins. These differences may seem superficial at first, but they can make a huge difference depending on a trader’s needs.

Open interest

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

As shown above, the total amount of open positions in futures increased from $ 19 billion to $ 41 billion today. Meanwhile, the daily traded volume has exceeded $ 120 billion, more than $ 107 billion.

While Binance futures hold the larger share of this market, a number of competitors have relevant volumes and open positions including FTX, Bybit, and OKEx. Some differences between exchanges are obvious, such as: For example, instead of the usual 8-hour window, FTX calculates unlimited contracts (inverse swaps) every hour.

BTC and ETH futures Open Interest, USD. Source: Bybt

Note that CME occupies the third position in Bitcoin (BTC) futures, although only monthly contracts are offered. The traditional CME derivatives markets are also notable for requiring a 60% margin deposit, although brokers may offer leverage for certain clients.

Stablecoin versus token-margined contracts

When it comes to crypto exchanges, most can allow up to 100x leverage. Tether orders (USDT) are usually denominated in BTC. In the meantime, the inverse perpetual order books (token margined) are displayed in contracts, which can have a value of USD 1 or USD 100 depending on the exchange.

BTC Perpetual USDT Futures Order Entry. Source: Bybit

The above image shows that a BTC-denominated amount is required to enter the Bybit USDT Futures order and that the same procedure takes place at Binance. On the other hand, OKEx and FTX provide users with an easier option that allows the customer to enter a USDT amount and automatically convert it to BTC terms.

BTC Perpetual USDT Futures Order Entry. Source: OKEx

In addition to USDT-based contracts, OKEx offers a USDK pair. Similarly, Binance Perpetual Futures also offers a Binance USD (BUSD) book. So, for those who don’t want to use Tether as collateral, other options are available.

Variable funding rates

Some exchanges allow clients to take advantage of very high leverage and while this may not present an overall risk as there are liquidation engines and insurance funds for these situations, it will put pressure on the funding rate. Hence, longs on these exchanges are usually penalized.

ETH Futures 8-hour financing rate. Source: Bybt

The graph above shows that Bybit and Binance usually have a higher funding rate, while OKEx consistently has the lowest. Traders need to understand that there are no rules that enforce this and the rate may vary between assets or take advantage of demand temporarily.

Even a difference of 0.05% corresponds to 1% additional costs per week. Hence, it is important to compare the funding rate from time to time, especially in bull markets where the fee tends to increase rapidly.

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading step is associated with risks. You should do your own research when making a decision.