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Review: FTX Derivatives Exchange – Most Innovative Trading Platform

FTX Crypto Derivatives Exchange just turned One Year old. Their native token FTT is now trading on India’s WazirX exchange, and WazirX’s WRX token is now available on FTX exchange. What does that mean for Indian users? What products does FTX offer and is it worth trading on? Let us find out.

The Beginning

FTX exchange launched in May 2019, with the idea of an exchange “By the traders, for the traders”. Folks from Quantitative trading and research firm Alameda Research spent thousands of hours on scrutinising APIs of various exchanges before deciding to launch their own exchange and removing the flaws they found in the incumbents. Hence the aforementioned tagline.

One of the largest Crypto Exchanges Binance, invested an undisclosed amount in FTX in December 2019. The exchange offers OTC, futures, indexes and spot trading and incorporated out of the Caribbean islands of Antigua and Barbuda, but operating from Hong Kong.

FTX has consistently been in the list of top exchanges by volume and offer innovative products that are also unique and exclusive to the platform.

You can literally trade a contract to predict the president of the United States of America. For example, TRUMP 2020 expires at $1 if Donald Trump wins 2020 elections, or Zero if he loses. Or you can trade a a perpetual contract that tracks the price of 50 low-cap altcoins in a contract known as SHIT perpetual contracts on FTX. We will get into the details of it and much more. But if you want to experience it yourself, you can sign up now and get started.

Sign Up To FTX by clicking on the Button below to Get A 5% Discount on all Trades

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FTX homepage after Signing up. FTX began offering leveraged tokens, Volatility tokens and oil futures recently.
FTX homepage after Signing up. FTX began offering leveraged tokens, Volatility tokens and oil futures recently.

Key Features of FTX

Not only does FTX have some innovative and advanced trading products, the exchange offers several more advantages to attract users. The platform is built for retail and institutional grade traders and the exchange features cater both of these categories well.

Multi-Step liquidation model:

When a Liquidation threshold is reached, the exchange takes over to force close user position in the market. The tiered liquidation ensures that the user gets the best price, leaving any remaining collateral in the account at the end of this process. Exchanges like Bitmex deploy a different mechanism, where user will not have any collateral left at the end of the liquidation. You can read the key differences in liquidation explained by a former Bitmex employee John Dummet here, or continue reading further.

When the market drops below the maintenance margin, FTX begins orderly liquidation of the user position. The volume-limited liquidation orders as mentioned before ensures that if markets aren’t moving violently against the position, some user collateral balance is saved. Additionally, not liquidating the entire position in one go, avoids the risk of crashing the market. In most cases, this works well.

In case of a choppy market and large liquidation, it is likely that the entire position is not liquidated before the account of the user goes bankrupt. To which, FTX calls in their artillery known as Backstop liquidity provider system.

When an account is getting auto-closed, it will have its position closed down at the bankruptcy price, and backstop liquidity providers will take over the position. BLPs can then hedge these positions on other venues. BLPs receive a part of the collateral from the user account that is closed and another part goes into the Insurance funds. The idea behind BLP is that Insurance funds, no matter how large, can be depleted if there is large movements in the market and accounts get closed below Bankruptcy prices.

BLPs take the strain off of insurance funds, and the exchange will only truly ever have to use a large chunk of insurance funds in a dire emergency. This makes clawbacks on FTX virtually impossible. According to an official blog, FTX tested 40% drop in market within 20 min and it wasn’t enough for a clawback.

And here is the fun excerpt from the official blog,

“We designed a system that we think will withstand huge market moves and huge volume without leading to any clawbacks. And if there’s ever a clawback on FTX, we fucked up. We will apologize, write a detailed post explaining the mistakes we made to get the market to the point that clawbacks were necessary, and issue IOUs against future insurance fund increases for any shortfall.”

FTX

Low Trading Fees

FTX has a tiered fee structure for all futures and spot markets. The highest fee is 0.02% for Makers and 0.07% for Takers. Additionally, users holding FTT the native token of the platform can avail further discount on fees.

Tiered Fee Structure on FTX Exchange

Non Isolated Collateral

One of the unique features of FTX is the use of Cross leveraging by default. User’s entire collateral balance is utilised in a trade. Consider a user has $1000 and wishes to place a long on BTCUSD for 1 BTC and BTC is trading at $10000. The leverage taken is 10x and full $1000 collateral is used in the order. If the movement is in favour of the trade, the leverage is reduced automatically, and vice versa.

Say the user sets the leverage at 20x, they need to place an order of 2 BTC at $10000 to actually use the full collateral at 20x leverage.

If the user wishes to place an order of only 1 BTC at 20x leverage, then they must create a sub-account and allocate $500 collateral and use the sub account to trade, thereby replicating isolated margin based trading.

Competitive Leverage

FTX offers 101x leverage to trade on the futures market. Bitmex offers 100x while Binance futures offer 125x leverage. Although available, users should trade wisely with high leverage.

Multi Collateral Market

Users can deposit multiple crypto assets and use them as collateral for trading. The collateral is calculated in fiat currency value for trading.

Zero Deposit and Withdrawal Fees and quick Withdrawal Processing

FTX charges no fee for deposits or withdrawals. The withdrawals are processed in a few minutes after placing the request. FTX absorbs the Blockchain Fees.

Quant Zone

FTX Quant Zone allows traders to create customised automated trading rules. Some features like copy trading, where other users can copy your trades and you can earn a chunk of their trading fees are going live later.

Something for Everyone

More features include OTC desks, robust insurance and liquidity funds, a very reliable customer support, upto $1000 withdrawal without verification so a new user isn’t stuck in bureaucracy and can experience the product. Some of these are specifically built for institutional grade traders.

We will discuss the trading products offered by the platform in the article, if you wish to skip and explore FTX yourself, you can sign up from the link below.

Sign Up To FTX by clicking on the Button below to Get A 5% Discount on all Trades

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FTX features as seen on HomePage
FTX features as seen on HomePage

FTX Trading Products

The exchange has a bouquet of offering with some products being unique and exclusive to the platform. Although a derivatives exchanges, FTX does have a spot market with few coins/tokens listed for trading. Besides this, users can trade Perpetual Futures, Leveraged Tokens, Options, Moves, Currencies, and some special contracts on the platform.

FTX Futures

FTX’s perpetual futures and monthly futures are available for many of the top cryptocurrencies including BTC, ETH, XRP, LTC, also other low/mid cap assets like TOMO, LINK, BSV, XTZ, ADA, EOS and more.

BTC Perpetual Futures Page on FTX.
BTC Perpetual Futures Page on FTX.

Futures for lower market cap and lesser known crypto assets attracts many users to FTX. In India, exchanges like CoinDCX offer margin trading on several alts but only up to 5x. Other Crypto Derivative exchanges like Delta also offer several alt coins, which brings us to something unique and “Special” about FTX itself.

FTX Special Futures Contracts

FTX has some of the best contracts for users to take advantage of. From Oil to the President of United States, there are several special contracts on FTX. For Crypto enthusiasts particularly, contracts like ALT Perpetual, MID Perpetual and SHIT Perpetual are great for exposure into the low to medium cap Crypto assets.

ALT-PREP tracks the price of a basket of Alt coins using the weighted average of the prices of ETH, EOS, XRP, BCH, BSV, LTC and BNB. User can get exposure to all seven coins in one future.

MID-PERP tracks the price of 24 mid-cap alt coins giving user an exposure to all of them in one future.

SHIT-PERP tracks the price of 50 alt coins, funnily called ShitCoins giving user an exposure to all of them in future.

EXCH-PERP tracks the price of a basket of Exchange coins using the weighted average of the prices of BNB, HT, OKB, LEO and GT. User can get exposure to all five coins in one future.

All Special Markets on FTX Exchange
All Special Markets on FTX Exchange

There also DRGN (Dragon) Perpetual futures that tracks several popular Chinese Public Blockchain tokens like BTM, IST, NEO and more.

FTX Leveraged Tokens

Leveraged tokens are ERC20 tokens that have leverage exposure to crypto. There are three different types of Leverage Tokens, 1x tokens are known as Hedge, 0.5x Long are known as HALF, 3x tokens are known as BULL or BEAR

  • The Bull tokens are ERC20 token with 3x long leverage. If ETH perpetual futures go up 10%, ETHBULL goes up 30%
  • The Bear tokens are tokens with 3x short leverage. So if ETH goes up 10%, ETHBEAR goes down 30%
  • Hedge tokens is a 1x short. In case if ETH going up 10%, ETHHEDGE goes down 10%
  • There are additional new ERC20 Leveraged Tokens known as HALF tokens. HALF are 0.5x long. If ETH goes up 10% ETHHALF goes up 5%.

Leveraged tokens get their price from the perpetual futures. If user buys $5000 worth of ADABULL (Cardano Bull token), it will buy $15000 worth of ADA perpetual. Hence user is 3x long on Cardano.

Recently Binance delisted all FTX leveraged tokens citing that users failed to understand them. Honestly, the above video explains Leveraged tokens very well. If done right, the potential to profit at lower risk is quite high.

Speaking of users failing to understand, even perpetual contracts would have been hard to understand the first time someone launched it.

Side note from a conversation with someone at FTX, due to no funding rate on Leveraged tokens, they are “Halal” by nature and hence compliant with Islamic Finance. Islam considers interest as “Haram”, that is why back in 2018, there was a huge debate on whether Bitcoin is compliant to Islamic Finance or not. A Cleric from Indonesia published a white paper on how Bitcoin was Halal, thereby compliant.

FTX Volatility Tokens and Moves

Another set of contracts available on FTX are Move Contracts. Move Contracts are options that allow you to trade based on the movement of price of a certain cryptocurrency such as Bitcoin by risking only a small amount. The movement can be on either directions.

FTX offers Daily, Weekly and Monthly Bitcoin Move contracts.

Additionally FTX also offers futures contracts for Volatility tokens such as BVOL and iBVOL.

BVOL tokens are ERC20 tokens that attempt to track the implied volatility of crypto markets. BVOL tokens get their exposure to implied crypto volatility using FTX MOVE contracts.

There are two BVOL tokens: BVOL and iBVOL. 

  • BVOL attempts to track the daily returns of being 1x long the implied volatility of BTC;
  • iBVOL attempts to track the daily returns of being 1x short the implied volatility of BTC.

Sometimes, users might have an opinion on how much Bitcoin will move, but unsure in which direction.  If user thinks that markets are going to be more volatile than expectations, they could buy BVOL ; if user thinks they’re going to be less volatile than expectations, they could buy iBVOL .

In order to get their volatility exposure, BVOL tokens trade FTX MOVE contracts.  In particular, they aim to hold 1/6th each of each MOVE contract that has not yet had its strike price determined as of each rebalance.  That means 1/6th each of:

  1. Tomorrow’s MOVE contract
  2. Next weeks’ MOVE contract, and the two weeks after that
  3. Next Quarter’s MOVE contract, and the quarter after that

Here’s an example from the FTX archives.

FTX Volatility contracts hold 1/6 of each Move contract on the platform.

All the leveraged and volatility tokens are ERC20 and hence FTX is not the only platform where it can be traded. There are many exchanges listing these tokens.

We will now discuss Options and the FTT token. If you want to skip the article and start using FTX, you can sign up from the link below.

Sign Up To FTX by clicking on the Button below to Get A 5% Discount on all Trades

Visit FTX

FTX Options

FTX also offers European-style options contracts for Bitcoin, they settle/expire in USD. Options contracts give traders the right, but not an obligation, to purchase or sell an underlying asset at a predetermined price, on a set date.

Options contracts can be opened as either a call or a put, which is ‘right to buy’ (bullish) and ‘right to sell’ (bearish) respectively. 

For example, if a trader opens a call for BTC at a $10,000 strike price, but the price reaches $10,500 by the time the contract expires, the trader would have a right to buy $10,500 worth of BTC for $10,000. This options position would cash settle at $500. 

Users have to set a combination of strike price and expiration time at contract open in FTX options. Once a trader has set their options up, they can request a quote from FTX, who will generate a bid or offer for the option contract in just 10 seconds. Traders can either accept the options contract, or choose not to trade. 

FTX options Request Quote Page
FTX options Request Quote Page

You can also write options on FTX.

The FTT Token

FTT (FTX Token) is the native ecosystem token of FTX Exchange, similar to BNB for Binance, or WRX for WazirX.  FTT holders have access to certain perks on the exchange, including:

  • Weekly buying and burning of fees
  • Lower FTX trading fees
  • Collateral for futures trading
  • Socialized gains from the insurance fund
FTT Statistics at Press time
FTT Statistics at Press time

There is a lower fee structure for FTT holders. Eventually, FTX will burn at least half of all FTT, including any FTT which are used to pay fees on the exchange, thereby reducing the supply, creating a scarcity.

FTT can be traded on the Spot/Futures market of FTX exchange, for users in India it can also be traded on Binance owned WazirX exchange.  

FTX Account Types, Limits and KYC

FTX operates three main account tiers with differing KYC requirements.  It’s possible to withdraw up to $9,000 a day without submitting any verification documents, while unlimited crypto withdrawals are reserved for Tier 2 account holders, and Tier 3 account holders gain access to unlimited fiat withdrawals via an OTC desk.

FTX Account Verification Tiers
FTX Limits for verified and non verified users

Fiat Supported but not INR

FTX supports several Fiat deposits and withdrawals for the below listed currencies. As you can see INR is not yet listed. Given that Binance has a good investment in FTX and has recently acquired WazirX exchange which caters the fiats needs of Indian users, we might see an integration in the near future.

  • USD
  • EUR
  • GBP
  • AUD
  • CAD
  • CHF
  • HKD
  • SGD
  • ZAR

Final Word

Despite writing about almost every feature on the platform, it is highly likely that our team has missed out or has deliberately not discussed certain features. FTX has something to offer for every genre of traders, thereby making it very attractive to new as well as seasoned traders in the market.

Since the exchange is only one year old, not much can be said about how it will look in the future, but in the past year FTX has had no security breaches.

The exchange has meticulous documentation for each of the features available on the platform which helps a lot in understanding their products thoroughly.

A user should be able to experience an exchange with ease. The $1000 withdrawal limit for non-verified users is a perfect set up for a new user to test out the platform.

The only negative as of now would be the absence of support for INR, which we assume would soon be available.

Sign Up To FTX by clicking on the Button below to Get A 5% Discount on all Trades

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