July 08, 2020
A Futures contract is a derivative which has its value tied to an underlying asset such as Bitcoin. A Futures contract is an alternative to spot trading where one can reduce risk and increase profit opportunities using leverage, which is the ability to buy more of a product than what the funds in your account would normally allow if one were trading the spot currencies. Someone who deposits $1,000 USDC can buy (long) up to $100,000 worth of Futures on CoinFLEX, with the $1,000 as “initial margin”. Instead of buying bitcoins they are entering into a contract with another user on the platform who is short. Futures have a set expiry date. Upon expiry, all positions must either be closed out – or will be delivered (longs get BTC, shorts get USD). Many traders prefer Perpetual Futures because there is no expiry date on them.
Exchanges offer Perpetual contracts which never expire, meaning a user can enter a long or short position and hold it as long as they want to or close out anytime. CoinFLEX offers Physical perpetuals. This means that if a user wants, they have the option of locking a perpetual position for delivery and receipt (for longs) or sending (for shorts) the Bitcoin or crypto relating to their position. This effectively allows a user to obtain all the benefits of perpetuals (leverage, no expiry, low fees) while also obtaining the benefits of spot, which is that a user can hold coins in cold storage, lend them out or spend them externally.
Trading Spot requires a user to deposit full funds before buying or selling an asset, whereas with Perpetual Futures, leverage allows a trader to buy more than they have in their account, or buy what they intend to buy without fully funding. Perpetuals also allow a user to short the asset, without going to the trouble of borrowing it. This can enhance a user’s returns, for example:
In the scenario where BTC goes up (e.g. 9,000 to 10,000), User B will make 10X the amount of money they deposited (in this case, 1,000 x 10 = 10,000). However if the BTC/USD Mark Price goes down to the Liquidation Price then User B will be liquidated, losing their entire deposit.
Perpetuals are also typically far cheaper to trade compared to Spot trading. CoinFLEX fees for example are 0.03% if you are the taker, and pay users 0.02% for providing liquidity. Spot exchanges on the other hand are typically 0.10-0.50%, making short term trading opportunities nearly impossible.
CoinFLEX offers Perpetual Futures which can be converted directly into the underlying asset at any time. This can be useful for example if someone has a 3X leveraged long position of 10 BTC and the price goes up or down and they decide that they wish to convert the position into spot, to keep the BTC in cold storage or lend it and earn interest. They can fund the required amount of USD and then click “Lock for Delivery”, at which point they will receive 10 BTC on the next daily delivery time. Similarly someone who has used Perpetuals to “hedge” their BTC holdings against the risk of a crash, may decide they would rather sell the bitcoins for cash instead of merely hedging them. Instead of buying back their short Perp position, and then selling spot, they can “Lock for Delivery” and receive USD.
Unlike index based Perpetual Futures which charge funding in order keep the contract in line, CoinFLEX funding is based solely on lenders in the Repo market, which results in a more fair, less expensive (to the leveraged trader) funding rate as passive dollar providers and crypto providers can earn funding anytime people want to take delivery, or if there is a difference between the Perp and Spot. This is an opportunity open to anyone looking to profit from those differences without creating an algorithmic bot or running a trading operation.
The “Mark Price” is the price that CoinFLEX uses to determine when to liquidate a user’s position and also the price for any unrealized PnL. Instead of liquidating based on order book depth, last price, or mid, CoinFLEX’s “Mark Price” uses an index of spot exchanges for its Mark Price.
CoinFLEX utilizes indices from Tradeblock.com, the leading index provider for crypto spot prices since 2013. Tradeblock is used by numerous OTC desks, market makers, and even structured product providers, such as the Greyscale Bitcoin Trust, to provide price data.
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BTC |
Tradeblock XBX |
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ETH |
Tradeblock ETX |
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BCH |
Tradeblock BCX |
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XRP |
Tradeblock XRX |
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EOS |
Tradeblock EOSX |
CoinFLEX’s funding rate is calculated based on the delivery imbalance and an auction trade in the Repo order book. For more details on this, see the Funding Rate / Auction section.
Limit
Good Till Cancel (GTC)
Fill or Kill (FOK)
Immediate or cancel (IOC, also called Taker-Only)
Maker-Only (also called Post-Only)