The world of crypto trading has come a long way over the last few years. FT Exchange is one of the latest exchanges to enter the crypto trading space and they are bringing badly needed trading tools to a young market.
Crypto to crypto trading is the most common form of trading out there today, but it isn’t the only way to invest or speculate in cryptocurrency. In fact, most exchanges have a hard time offering derivatives like futures and options on major cryptos.
While there are some exchanges out there that offer futures on cryptos, they are a far cry from the kind of futures one would find in the established financial markets. The use of ‘clawbacks’ is common and actual exchange-side risk analytics seems to be missing from the marketplace.
FT Exchange is changing the way that crypto futures are traded, and it is also bringing some innovative new products to the crypto exchange market. The company backed by Alameda Research and has been growing its daily transactions quickly since it went live.
FT Exchange is a Great Choice for Futures
The market for crypto futures is unique. Unlike other established financial markets, the amount of liquidity available to settle crypto futures can be a challenge for exchanges. There are very few exchanges that actually have the amount of liquidity needed to be market makers, which is likely why there are so few choices when it comes to crypto futures.
Futures aren’t commonly used by retail investors in the mainstream financial markets and they can be very dangerous if handled incorrectly. It is easy to think that a futures position is easy to manage, but in reality, they can be very dangerous.
FTX brings three important things to the crypto futures market: risk control, innovation, and liquidity.
Alameda Research is a quantitative cryptocurrency trading firm with around $70million USD of Assets Under Management (AUM). This gives FTX Exchange a clear advantage when it comes to ensuring adequate liquidity for futures trading, and also allows FTX to access advanced risk management tools.
Risk is Everything
Trading crypto futures is a little differ net from the futures markets that exist for other financial instruments. When a crypto futures trader ‘blows up’ their account, other traders on the platform may have to sacrifice some of their gains in order to keep the exchange solvent.
When this happens, it is called a ‘clawback’. If you haven’t heard this term applied to the futures markets before, you aren’t alone. Normally a futures trading market maker would be able to transfer its risk to an even larger financial institution, like a money center bank. In the world of cryptocurrency, this ability doesn’t exist, so clawbacks are necessary.
A blow up that resulted in a massive clawback at OKEx last summer demonstrated how important risk analysis is to both exchanges and traders. Somehow a trader was allowed to buy a position in Bitcoin futures that was worth something near $400 million USD and the trade went horribly wrong.
OKEx took 18% away from anyone who had made money from the contracts that the trader who went broke was on the other side of, which is a direct result of poor risk management. Clawbacks are probably going to be a part of crypto futures until the market grows, which is why FTX Exchange’s risk management solutions are so important.
Innovative New Tokens
One of the biggest innovations that FT Exchange is bringing to the crypto markets is leveraged tokens. Managing a futures position is very difficult, and now it isn’t necessary. FT Exchange created a range of leveraged tokens that allow investors and speculators to buy +x3, -x1 and -x3 exposure to Bitcoin, Ethereum, Ripple, EOS, and Tether.
The advantages that a leveraged token have for a normal investor are significant. Instead of having to use a more advanced financial instrument (like futures) to leverage their holdings, investors and speculators can buy a leveraged token.
There are no margin requirements, and it is much easier to assess value at risk with leveraged tokens. Trading futures is complex. Many investors struggle to understand how easy it is to lose all their money, which is a big problem for everyone on the exchange if cryptos are being traded (due to clawbacks).
Additionally, a leveraged token doesn’t require a margin account to use. FT Exchange has created a much better system for margins in crypto futures trading, but there is no need for margins at all with its leveraged tokens.
There are a number of ETFs that represent leveraged exposure to numerous existing financial instruments which are very popular. The big plus for investors is that while they are able to gain leveraged exposure to volatile assets, there is no way for them to incur a negative account balance. This is good for everyone involved, as it eliminates the risk of a clawback.
A Single Stablecoin Wallet
Futures one of the most popular ways to hedge a position (and were originally created to do just that for producers of physical commodities). In the established financial world, there is generally only one currency needed to trade in numerous futures, but this hasn’t been the case in the crypto world.
Outside of FT Exchange, crypto futures have to use the crypto that is being traded as margin. The limits that this imposes on a trader are substantial, and it also drives up the cost of trading across the largest cryptos.
FTX has created a platform that allows traders to use USDC and TUSD as collateral for all of the crypto futures they offer, which is a huge step in the right direction. Traders that want to have a high degree of flexibility in what crypto futures they hold will be well served by FT Exchange, as they don’t have to worry about maintaining margins for individual crypto futures anymore.
FTX Makes Hedging Easier
Hedging is one of the most basic functions of a futures contract, but finding effective ways to hedge has been a challenge in the world of crypto trading. FT Exchange’s new leveraged tokens are a great way to hedge, especially if you don’t want to manage a futures position.
The -x1 leveraged tokens for Bitcoin, Ethereum, Ripple, EOS, and Tether are purpose-built to hedge positions, though the -x3 tokens could also be used to do the same job (with fewer tokens). Using a leveraged token to hedge is a good way to remove futures from your hedging strategy, and cut down on your workload.
The leveraged tokens that FT Exchange created are ERC 20, so they can also be traded on any crypto exchange that chooses to list them. Being able to hedge your positions with a fungible, freely tradable token is a huge step forward for crypto trading, and is likely to help FTX Exchange gain even more credibility in the crypto markets.
Futures on Tether
Despite all the drama and controversy surrounding Tether, it remains one of the most popular stablecoins in the world. It also fluctuates in price, which is very odd for an instrument that is supposed to be tied directly to the value of the US dollar.
Not only does FT Exchange give its clients an easy way to hedge their USDT positions with the USDT -x1 token, it also offers futures on USDT. A leveraged USDT token makes a lot of sense for traders and investors that use USDT as their cash equivalent and need to make sure it maintains its value over time.
The Market has been Waiting for FTX Exchange
FT Exchange isn’t another player in an already packed market. It has introduced new ways to invest and speculate, and also innovated in how traders can use futures. The ability to use a single currency for a futures account is taken for granted in the established financial community, but it has been an oversight in the world of crypto trading.
The relationship that FT Exchange has with Alameda Research is also important for the company. Unlike other exchanges, FTX is backed by a professional investment firm that understands risk. Clearly, this kind of professionalism has been lacking in the industry, which is probably one of the reasons why FTX is growing its client at a rapid clip.
FT Exchange also offers OTC trading with some of the tightest spreads available anywhere. It has been a favorite of institutional traders who need to move volume at low rates. FT Exchange expects its OTC business to grow alongside of its futures brokerage, especially as the exchange is marketed more aggressively.
FT Exchange Launches FTT Token
Like most exchanges, FT Exchange has created its own token. It is called the FTT token and it offers advantages to traders who choose to use it on FT Exchange.
The FTT token will allow traders to operate on the exchange at lower prices, and may also appreciate in value. Overall FTX Exchange has brought a lot of new options to crypto traders and investors.
FT Exchange is likely to grow as more people realize how much better a single margin currency is for futures, and why leveraged tokens are much easier to deal with than futures.
FTX Trading fees
There is a 0.02% fee on all provides and a 0.05% fee on all takes.
VIPs receive a 50% discount on all fees, paying 0.01% on provides and 0.025% on takes.
There are no fees on futures settlement.
The leveraged tokens have creation and redemption fees of 0.10%, and daily management fees of 0.03%.
There are no deposit fees. There are no withdrawal fees other than blockchain fees.