Navigating Crypto Derivatives; The key to leveling up with aspiring traders
In 1996, the New York Times wrote a piece about the introduction of the Internet to the stock market. The article discussed how the Internet can replace the functions of a broker, whose stocks in trade are information, advice and execution of transactions, all of which can be cheaper and easier to find online. This seminal piece can be considered the starting gun for the debate about whether the world needed a high-priced Wall Street brokerage house to find buyers for their stocks when this could potentially be done by investors directly over the web.
True enough, what was once nothing more than a hypothesis has become reality. Exchange is just a click away and information can be found in abundance over the Internet in seconds. The utility of the Internet has placed significant power in the hands of individuals, thereby giving budding traders a chance to play the game, a chance to generate wealth, but also the exposure to the risks in the markets.
While Wall Street was once the world stage for professional traders and brokers, thanks to the power of the Internet and Web3, the image of industry titans ringing the opening bell on busy trading floors is no longer relevant; now people trade from the comfort of their own bedrooms, and the sound of opening bells has been replaced by the incessant ping of Twitter alerts alerting traders to the latest IEOs.
However, there is another shift in commerce happening… and that is the increasing, rapid movement towards accessing more lucrative financial opportunities through:
Trading in crypto derivatives
For those unfamiliar with a derivative, it is a financial instrument whose value depends on the values of other more fundamental underlying variables and includes assets such as futures, forward contracts, swaps, options and more. Some commonly traded crypto derivativespp includes futures and options as well as perpetual contracts and swaps.
Derivatives play a central role in transferring risk in the economy and in making spot markets more liquid; historically, crypto spot markets have been incredibly illiquid, even when adjusted for market capitalization relative to traditional markets. It was not until the introduction of crypto futures markets that the spot markets saw a noticeable uptick in their department and liquidity, which began to take effect from 2017-2019.
In addition to their use as a hedging instrument – which, from around 2021, has been transformative for venture investors looking to lock in prices for unvested/locked token holdings – derivatives can also be used to speculate – with this arguably being their primary use case – and to gain exposure to markets without having to own the underlying asset value you are trading; a point of great convenience, given the nature of some crypto assets!
Likewise, with the ongoing and growing use of blockchain technology, cryptocurrency derivatives trading is becoming increasingly popular. Based on a report by Tokeninsights Cryptocurrency Derivatives Exchange, the cryptocurrency derivatives market’s trading volume grew exponentially between Q3 2019 and Q2 2020 with a total increase of 159.4%. This peaked in May 2021, just before the Chinese mining ban that cured the start of the current bear market. A pullback thereafter brought it somewhat back towards the May 2021 high, although it has apparently plateaued since then.
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With many analysts and researchers predicting strong growth in the crypto derivatives sector over the coming years, what can we do to stay ahead of the game? What can be done to take you from aspiring to confident trader in the cutting edge crypto derivatives market? We have just the right solution for you.
The Globe Edge
Just as important as knowing which instruments to trade and how they work, is knowing where they can best be traded; with crypto derivatives, the underlying asset can be any cryptocurrency token, or a basket of them, or even their volatility itself. Typically, crypto exchanges mainly use the stablecoin USDT as a quoted price against cryptocurrencies for derivatives such as futures, forwards and swaps (as well as for spot trading).
While this may be an attractive solution for many, those who hold cryptocurrencies such as ETH and BTC, or who are concerned about the tying of assets such as USDT, are likely to avoid such contracts, unless their perceived risk can be diversified away, due to high opportunity costs associated with converting their crypto assets into stablecoins.
Globe Exchange provides a solution to this; through their newly launched unified margin feature, traders will be empowered to use virtually any asset as collateral for trading linear perpetuals on their derivatives exchange, thus solving the problem of order book fragmentation that plagues legacy exchanges that split order books into USDT or BTC- margined futures. Regardless of the coins a trader holds, they will no longer be required to exchange assets for stablecoins to trade linear perpetuals, allowing them to interpolate their risk profiles between BTC longs and stablecoin holdings.
In addition to that, through Unified Margin, traders will also be allowed to use coins like BTC to trade futures contracts without converting it to stablecoins, which will allow a trader to maintain exposure to BTC while using short-term trading strategies.
Simply put, Unified Margin will allow a trader to participate in futures markets by facilitating the use of any coin as collateral.
Performance
Derivatives trading is a high performance activity; when you have conviction in a trade and an entry price point, you must have confidence that the exchange you are trading on is liquid enough to fill your order. Often, when limit orders are placed, one of the most common occurrences – and a major obstacle to trading strategies – is that the order does not get filled and the trade does not go through, or that receiving orders suffer from large slippage, or exchange delay spikes make it unclear where the trade is likely to will take place.
All of this therefore means that if the trade did end up being incredibly profitable, the trader would have missed this opportunity by the exchange not being able to make their trade.
This is a problem with the liquidity of an exchange; globe is already one of the most liquid futures exchanges in the world. Despite its launch only a few months ago, it has surpassed older, well-recognized industry names such as Kraken, Bitmex, Bitfinex & Gate in terms of liquidity, thereby drastically reducing the risk for traders of not getting their orders filled.
As such, it is incredibly important to research the performance and liquidity of the trading platform you will be using in order to execute the trades you wish to place. Going back to the example of Globe, for example, they have a unique exchange architecture; it is designed to provide a better, faster, safer and more fluid trading experience for its users.
Unlike older exchanges, Globe’s cloud API returns robustly in a few milliseconds, while, for example, FTX often reacts 80 times slower. Indeed, Globe’s matching engines have surpassed even those in traditional finance (5us vs. 50us for LSE whitelabels, etc.)
Security and functionality
One of the most important factors – if not the key consideration – when choosing a trading platform is security. Crypto is unfortunately known for hacks and security breaches. Without a robust, proven security architecture in place, being a profitable trader and having a successful strategy in place becomes redundant; Being highly profitable is redundant if your money is stolen. With Globe, this is nothing to worry about; their wallet has never been hacked or compromised, and they have invested in an industry-leading security architecture, such as cold storage solutions and robust insurance protocols, designed by some of the most accomplished experts in the field.
Also important to note are points such as liquidity; When you trade on margin, you use leverage to increase your position size with the aim of increasing your profits. With increased position size comes the consideration of liquidity; through the reliability of the platform and their work with teams of institutional market makers, Globe has enabled the instruments on their exchange to have enough market depth to ensure that orders are filled, regardless of how large or small traders want their positions to be.
Final thoughts
With the Globe edge, traders will be able to upgrade their trading skills, one or more steps at a time, catalyzing the transition from aspiring to professional trader in a short period of time.
Get started today and exchange any assets in your account as collateral by visiting:
