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Top 🌎Global Derivative Exchanges

55 (39 are Active)
Highlights

State of Global Derivative Exchanges

Across 40 active derivative exchanges, global crypto volume is $4.58T, which is up +3.37% over the last month. The amount of transparent volume across derivative markets fell by +8.55% globally. Global derivative volume dominance is currently at <1% compared to the rest of the globe — a decrease over the last 30 days.

Volume (1mo)

$4.58T+3.37%

Gainers by Volume

1Prime XBT+$214.45B (551%)
2Binance+$110.54B (6%)

Transparent Vol.

57% $2.63T+9%
#Volume %% of TradesFiat CurrenciesCSV Data
110.00
$1.90T
41%
41.41%
A
2,705,290,905
86%
86%
2,016
AUD, BRL, EUR +7
28.47
$716.42B
16%
15.63%
C
24,260
KRW, USD
38.34
$455.86B
10%
9.95%
C
1,283
USD
48.19
$559.07B
12%
12.20%
A
341,389,166
11%
11%
1,748
AUD, BRL, EUR +1
57.61
$44.82B
1%
0.98%
A-
31,738,438
1%
1%
636
EUR, GBP, JPY +1
67.55
$49.52B
1%
1.08%
A
10,709,334
<1%
<1%
310
CNY, EUR, JPY +1
77.49
$12.21B
<1%
0.27%
D
139
USD
87.43
$253.38B
6%
5.53%
D
77
AUD, CAD, CHF +12
97.41
$12.78B
<1%
0.28%
D
14
JPY
107.07
$7.78B
<1%
0.17%
C
84
USD
117.02
$11.88B
<1%
0.26%
A
4,988,716
<1%
<1%
112
EUR, JPY, USD
126.89
$108.01B
2%
2.36%
C
461
USD
136.78
$13.28B
<1%
0.29%
C
3,472
BHD, USD
146.58
$33.95B
1%
0.74%
C
58,633
USD
156.29
$16.92B
<1%
0.37%
A
2,523,973
<1%
<1%
6
USD
166.13
$9.10B
<1%
0.20%
A+
7,579,512
<1%
<1%
22,239
USD
175.99
$46.43B
1%
1.01%
C
204
USD
185.93
$37.55B
1%
0.82%
A
29,146,802
1%
1%
484
EUR, GBP, JPY +1
195.86
$13.22B
<1%
0.29%
D
660
205.77
$6.33B
<1%
0.14%
C
677
215.74
$56.24B
1%
1.23%
C
497
225.43
$372.64M
<1%
0.01%
D
56
235.39
$12.74B
<1%
0.28%
C
157
USD
245.33
$127.20B
3%
2.78%
C
52
255.21
$76.09M
<1%
0.00%
C
1,545
264.94
$32.02B
1%
0.70%
C
366
274.62
$6.45B
<1%
0.14%
C
785
284.17
$10.60B
<1%
0.23%
C
195
293.65
$118.93M
<1%
0.00%
A
18,151,650
1%
1%
132
USD
303.59
$2.81B
<1%
0.06%
A+
1,275,726
<1%
<1%
12
313.55
$1.31B
<1%
0.03%
D
18
323.42
$532,486
<1%
0.00%
D
97
USD
333.40
$4.40B
<1%
0.10%
D
78
343.18
$1.03B
<1%
0.02%
D
12
USD
352.58
$6.93B
<1%
0.15%
C
14
361.83
$3.23M
<1%
0.00%
A+
6,798
<1%
<1%
112
EUR
371.80
$425.44M
<1%
0.01%
A+
1,139,400
<1%
<1%
12
USD
381.37
$12.93B
<1%
0.28%
C
11
USD
391.20
$684.86M
<1%
0.01%
C
101
Think something's missing from our list? Let us know

Frequently Asked Questions

  • What is a cryptocurrency exchange?

    A cryptocurrency exchange is a trading venue that allows its clients to buy, sell (and sometimes store) digital currencies. Cryptocurrency exchanges are online platforms (digital marketplaces) where traders can exchange cryptocurrencies for other cryptocurrencies or fiat money (like the USD or Euro). The process of exchange is usually based on the market value of the particular asset. However, exchanges can differ in their pricing process. For example – some may provide a flat rate but charge additional fees depending on the preferred payment method, while others may provide a total sum that has everything included (rate, trading fee, payment fee, and others).

    Cryptocurrency exchanges are very similar to traditional stock exchanges. For example, buyers and sellers can place limit orders or market orders, and the brokering process works the same way it would with any other type of asset. When a market order is selected, for example, the trader authorizes the platform to take care of his coins and find the best possible price to execute the trade at. With a limit order, on the other hand, the trader instructs the exchange to jump into a trade only if the price is below the ask or above the bid (depending on whether they are selling or buying), at the particular moment. The cryptocurrency exchange serves as an intermediary that helps with the order matching and fulfillment and collects fees. However, at the same time, cryptocurrency exchanges have some core differences, when compared to traditional exchanges. For example – the majority of cryptocurrency trading venues are unregulated.

    There are two main types of cryptocurrency exchanges – centralized (CEX) and decentralized (DEX). The majority of digital asset trading platforms worldwide are centralized. The idea of centralization refers to having a middle man (the exchange operator) who helps conduct transactions. This means there is one central authority that governs the whole process, much like traditional stock exchanges. This type of setup is widespread also within other financial institutions like banks and brokerage companies. In general, the buyers and sellers trust the exchange operator to take care of the trades' execution and fulfillment. Decentralized cryptocurrency exchanges, on the other hand, have no authority to control them. They are an alternative that cuts out the middlemen and creates a “trustless” environment, based on smart contracts. The idea behind decentralized exchanges is to serve as a P2P (peer-to-peer) trading venue. At the time of this writing, though, decentralized cryptocurrency exchanges are significantly behind the centralized ones in terms of trading volume, users’ base, and overall usability. Apart from CEXs and DEXs, however, there are also websites that are not cryptocurrency exchanges, such as https://localbitcoins.com/ which also allow to buy and sell digital assets. However, if you want to take advantage of professional trading tools and high liquidity, it is always better to choose between some of the leading cryptocurrency exchange service providers.

    To engage in trading on a centralized exchange, in most cases, a user has to go through a series of verification procedures to authenticate their identity. That is because most of the leading centralized digital asset exchanges adhere to KYC and AML policies. What this means is that the users are required to submit personal details and scanned documents that can verify their identities, such as government-issued ID or Passport, address (and a utility bill that confirms it), telephone number, email, and others. Although this goes against one of the core ideas of cryptocurrencies, in the face of anonymity, it ensures better protection of users’ funds and a higher level of security. Once the authentication is successful (the time needed for identity verification depends according to the policy of each exchange, but most of the time is within 24 and 72 hours), an account is opened, and the user can fund his account and start trading. Regarding account deposits, it is worth noting that different exchanges support different payment methods. Some support direct bank or wired transfers, while others allow for using credit and debit cards. Those types of cryptocurrency trading venues are known as entry-level exchanges. Some exchanges, however, require the account deposits to be in cryptocurrencies.

    Although cryptocurrency exchanges had been around since the early 2000s with the birth of the first digital currencies (like E-gold), they became popular with the rise of Bitcoin and the following increased interest in the digital asset class. At the time of this writing, there are more than 160 cryptocurrency exchanges listed on Nomics. In reality, digital asset trading venues pop up almost daily. While some fail along the road, the overall number of cryptocurrency exchanges follows a positive trend.

  • What is the best cryptocurrency exchange?

    This is, probably, the most common question when it comes to cryptocurrency trading. The biggest issue with cryptocurrency exchanges is how to find a service provider that is secure, credible, and transparent. In the years since the introduction of Bitcoin, there have been numerous cases of cryptocurrency exchange businesses that have closed shops due to internal or external reasons. Some have suffered from massive hacker attacks, while others ended up being scam schemes. In most cases, those who were affected the most were the traders who ended up losing their funds. Reports point out that more than $1.7 billion were stolen from exchanges in 2018. According to industry experts, the figures for 2019 are projected to exceed $4 billion.

    That is why choosing a cryptocurrency exchange to execute your trades on is such an important matter. Although, nowadays, the number of active cryptocurrency exchanges is rising exponentially, the issue with finding a reliable service provider still remains.

    To help you find out what is the best cryptocurrency exchange to serve your needs, here are five things to look for:

    1. History

    The first thing to look for is the exchange’s history. Go as far back as possible to find out whether the platform had been involved in some shady business activities. Try to understand as much as possible about the background of the founders and the operating company. Sometimes, the operating entity is covered in secrecy or hidden behind circles of other companies, just like the cases with C2CX and GDAC.

    Bear in mind that obtaining the complete history for an exchange often is a tough task. There are lots of service providers that share very limited information or even try to cover their tracks intentionally. Let’s take BTCsquare or Livecoin, for example – the cryptocurrency exchanges don’t share anything related to their founders, operating company, or official address. This often is a red flag, so make sure to stay away from such service providers.

    Another essential thing is to try finding out whether the particular exchange had been subject to hacker attacks or governmental investigations. If it had been investigated or compromised, analyze what the exchange’s response was and how it navigated the situation. This can be either an alarming or a positive sign. For example, although Nova Exchange suffered a hacker attack, it faced the problem publicly and notified all its users immediately, which helped mitigate the consequences. The platform also went on to help other victims of hacker attacks like the token projects from the failed Cryptopia, by listing them for free. Alternatively, let’s look at Zaif, for instance – although the exchange was hacked, it made everything possible to compensate its clients for the suffered losses and worked in close cooperation with local authorities to track the cybercriminals. Some of the leading cryptocurrency exchanges like Binance and Bitstamp have also been hacked. However, this didn’t stop them from becoming leaders in the industry. On the other hand, trading platforms like Coincheck found it hard to recover from the security breaches they suffered. In a nutshell – try to learn as much as possible about the exchange’s history of security issues, and more importantly, how it reacted in crisis situations. This can serve as a good indication for its plans, reliability, and attitude towards its user base.

    2. Transparency

    Think of this, also like the way the exchange treats you, as a potential client. Does it find it necessary to reveal important details that may help you make an informed decision? Does it face the public openly by stating who runs it, and what are their long-term plans? Does it have a solid media appearance or just paid PR articles? Are there any questions that remain unanswered after going through all the information on the platform’s website?

    At Nomics, we say that “Transparency must be trustless.” That is why we have created our Transparency Rating system, which helps users distinguish the exchanges that are open to the public, from those covered in secrecy (examples of exchanges with the highest transparency rating on Nomics are Deribit, Switcheo, Binance and others). However, many cryptocurrency trading platforms fall in the second category. To avoid falling for scam schemes or unethical service providers, make sure to focus on the information coming directly from the exchange. You can start with the “Terms and Conditions”, for example. We have reported about several exchanges (OOOBTC, BTCBox, and others) that copy their terms directly from one another without changing even a slight bit of the information. However, this is not the worst case. Bitbegin, for example, has a clause in its terms page that requires the client to pay them “at least \$1 million in compensation” should they breach the agreement. JEX has a similar clause, but the compensation there is estimated at “at least \$2 million.” Considering the fact that most of the time, these agreements are very general, written in poor English, thus a subject to wide speculation, users can often end up owing the exchange compensations. Do your best to stay away from such platforms.

    Another good thing to do is to get familiar with the feedback from the exchanges’ existing clients as this is the most accurate and objective way to tell whether the particular service provider is reliable. A good starting point is the user-generated exchange reviews available on our platform. Take Binance, Kraken, or Bitstamp’s pages, for example. Plenty of users describe their experience with the platforms and openly admit if they have had some issues as well. Also, make sure to check Bitcointalk, Reddit, and Trustpilot to find out whether there are unsatisfied customers and what they are most often frustrated about. If the exchange lists ICO tokens, try to find out what is the feedback from the project owners. In the case of Tradesatoshi, for example, thanks to information from the teams running projects, listed there, the exchange was exposed to doing unethical practices like delisting, without prior notice, and stealing the tokens, left in the platform.

    Bear in mind that the reliable cryptocurrency exchange won’t hesitate to provide information about its official address, working hours and the team behind the platform. That is its way to say that it is open to communication and is willing to assist you in case you need so. Unfortunately, the majority of the platforms avoid providing such information. On the other hand, they often request from you to adhere to their KYC procedures and provide sensitive personal information such as a copy of ID or a Passport, official address, telephone number, etc. Make sure to avoid registering for platforms which don’t find it necessary to be fully transparent with their clients, while at the same time request the same from you.

    3. Security

    Security is the biggest pain point when it comes to cryptocurrency exchange businesses. While no platform is completely immune to hacks or security breaches, some are safer than others or at least try their best to protect their clients.

    When searching for the best cryptocurrency exchange to trade on, try to find out as much as possible about the employed security measures. Bear in mind that the most widely adopted protection is two-factor authentication, so it is safe to say that it is the industry minimum. However, a big number of the platforms don’t go past that, which is the reason why, in recent years, many clients have lost their funds.

    Don’t forget that even the most secure platforms can’t ensure 100% protection of your funds if you don’t help them. The easiest way to do that is to ensure the safe storage of your coins by keeping them in an offline (cold) wallet. Many investors underestimate the importance of this and keep their coins in hot wallets, integrated into the exchanges’ websites. Although most of the platforms migrate the majority of the funds from users’ accounts to offline wallets, they usually keep 5% to 10% online, as capital buffers for immediate transactions. However, don’t forget that it is always better to rely on yourself, rather than the service provider.

    4. Liquidity

    One of the key selling points of cryptocurrency exchanges is the trading volume they generate. Generally speaking, the higher the levels of trading volume, the lower the volatility and the risk for market manipulation that is likely to take place on the exchange. That is the main reason why shady cryptocurrency exchanges often provide false information regarding their trading volume. We have already discussed the problem with fake liquidity present within the majority of trading platforms and how it affects their clients. In fact, that is the main reason why we created the Transparency Rating system. That way, our audience can easily find out which exchanges provide real data and which remain in the shadows.

    So, what risks does an investor face when using a low-liquidity exchange? First of all, there is the risk of price instabilities. Next, the investor risks missing a key trading opportunity due to the lack of buyers or sellers. You can find out more about this on forums like Reddit and Bitcointalk, where clients of shady exchange service providers report about placing orders that are left pending for days.

    Here we should also mention volatility as another crucial consideration. Because of the time it takes for transactions to be completed, the price of a given coin can change between the time the transaction is initiated and the time it is finalized. The higher the trading volume and the faster the transaction can be processed, the less likely it is for such a fluctuation to occur.

    5. Trading features & fees

    Of course, traders should also base their choice on the features that the exchange provides. For example – traded markets, supported payment methods, charting tools, identity verification requirements, platform usability and accessibility, geographical restrictions, etc.

    Let’s start with traded markets. Some cryptocurrency exchanges (Coinbase included) are focused on offering only leading coins like BTC, ETH, LTC, XRP, and so on. Others, on the other hand, operate in the niche of more exotic altcoins, listing upcoming tokens. However, most of the biggest exchanges, like Binance, and Gemini, offer a variety of digital assets, which grants flexibility.

    When it comes to the supported trading methods, it is worth noting that some cryptocurrency exchanges (known as “entry-level”) support fiat deposits, while others offer only cryptocurrency deposits. Entry-level platforms usually support various methods such as bank transfers, credit and debit cards, gift cards, PayPal, and so on. If you choose to fund your account via a wire transfer, you should know that the procedure is quite slow and will take several days to complete. Credit and debit card account funding, on the other hand, happens instantly. However, it is usually associated with higher fees (up to 5%) and requires identity verification.

    If you are an advanced trader who aims at using professional trading tools, then you should get familiar with the trading features, offered by the exchange. Many platforms provide simple functionalities like buying and selling, without even supporting basic charting tools. However, if your trading strategy employs multiple indicators and hand-picked trading mechanics, then you should choose one of the more advanced exchange service providers (or use third-party software for charting).

    It is also a good idea to analyze the exchange’s usability. The good user interface and smooth user experience usually are signs of a well-developed platform. If you plan to trade on the go, then make sure to find a platform that has a fully-functional mobile app.

    Some exchanges also impose restrictions depending on the users’ location. Most of the platforms have a list of high-risk countries that they don’t operate on. However, although the majority of the platforms try to expand their operations worldwide, at the time of this writing, most of them serve local markets (US, EU, Asia, etc.). Often is the case when some European or Asian cryptocurrency exchanges don’t serve US clients due to the strict regulatory landscape in the country. Yet, when it comes to geographical restrictions, the biggest service providers are usually the best choices, as they are usually open to clients from all around the world (aside from the high-risk markets).

    Here we should also mention the platforms’ fee policy. Most cryptocurrency exchanges should have fee-related information on their websites. Before setting up an account, make sure to get familiar with the deposit, withdrawal, and transaction fee structure. For example, when it comes to account funding, most individuals prefer wire transfers as they are cheaper, although a bit slower. For those who want to start trading instantaneously, most exchanges offer support for credit/debit cards. However, in this case, the general principle is that you will be charged a higher fee (up to 5%). When it comes to trading fees, it is worth noting that most exchanges employ a maker-taker model. A maker fee is paid when the user generates liquidity (places a limit order), while a taker fee is paid when the trader removes liquidity (places a market order). Fees are usually a proportion of the transaction and can range from 0.1% up to 0.5%. However, in some instances, the transaction fees can be lowered. Clients who generate higher trading volumes enjoy lower fees, while some exchanges, like Binance, for example, offer fee reduction for the holders of their token.

    So last, but not least – don’t forget about customer support. This is one of the things that many service providers struggle with, and users often report about. Make sure to use a platform that supports several communication channels such as email, live chat, telephone, social media, and so on. Bear in mind that unresponsive customer support is a common thing and in cases where a user can’t see his funds in the account, it can be very stressing.

    The good thing today is that the cryptocurrency exchange niche isn’t the Wild West that it used to be, a few years back. Today, there is plenty of information to help you find the perfect service provider, according to your needs – just follow the steps mentioned above, and you will be in safe hands.

  • How to exchange larger amounts of cryptocurrency?

    Cryptocurrency exchanges usually restrict investors who want to trade larger amounts of cryptocurrency via the conventional way. They do so because, currently, although on the rise, the trading volume on most cryptocurrency trading platforms still remains relatively low, when compared to traditional FX and stock markets. Due to the low trading volume, investors who want to place large orders (also known as “whales”) can significantly affect the price of a particular digital asset. This is harmful to the market and the trader, himself, as the price of the instrument can be moved even before the trade is completed (this is also known as “slippage”). Aside from that, exchanges might need to divide the big order into a few smaller ones, which can end up executed at different prices and at different times. So, in situations, where the value of the order placed is relatively significant to the amount of the daily trading volume, generated on the particular exchange, the investor is required to find another way of executing his trades.

    So, when is an order considered a “big” one? Hedge funds, high-net-worth individuals, and wealth management companies, for example, often trade millions worth of cryptocurrencies at once. However, traditional cryptocurrency exchanges offer OTC trading services to investors who want to trade over $100,000 worth of cryptocurrencies, in the case of Poloniex (Circle), $250,000 in the case of Bittrex, and 20 BTC for Binance’s users.

    The most preferred way to exchange larger amounts of cryptocurrency is through an OTC desk (over-the-counter). The OTC trading process mechanics is based on big chunks of buy and sell orders known as block trades. What OTC desks do is find buyers and sellers with significant portfolios and pair them together to conduct a trade. That way, the parties can fulfill their trades at once and at a fixed price, without affecting the trading process for smaller investors on the exchange. Another benefit that OTC trading provides is shorter withdrawal times. Instead of having to wait for a few days, traders can withdraw at once and, in most cases, within 24 hours.

    There are several ways for one to get involved in OTC trading, such as via an electronic chat, telephone, and cryptocurrency ATMs. Traders prefer these ways due to anonymity, as the trades aren’t audited or reported to external agencies. However, a big part of the OTC trading activity takes place on cryptocurrency exchanges, as well. Some platforms like Binance, Coinbase, and Kraken, for example, provide such a service. To benefit from it, the investor should set up an account and pass an identity verification, in accordance with the KYC and AML policies, adopted by the particular exchange. Once the account is successfully established, the trader can proceed with requesting a quote. The OTC desk will then try to find a match for the quote. If it can’t find a match, it gets back to the trader with other terms, similar to his. Once both parties agree on a price, the trade is executed.

  • What do I need to track crypto exchange data for taxes?

    As you may, or may not know, depending on your country of residence, you may be required to pay taxes on your cryptocurrency investments. Although some countries like Germany, Switzerland, Malaysia, Malta, and Portugal may not consider cryptocurrency investments as taxable, under most jurisdictions, you are required to pay taxes on your returns from investing in digital assets. In the US, for example, no matter whether you collect mined or forked coins, or exchange crypto-for-crypto or crypto-for-fiat (except buying crypto with fiat), your transactions should be reported to the IRS. IRS Notice 2014-21 defines cryptocurrencies as property, which means that everything you buy with digital coins will be taxed as a short- or long-term capital gain, depending on the holding period. So, yes, even the coffee you bought this morning with Bitcoins qualifies here.

    To comply with the law, you should keep records of your transactions, including all buy and sell orders and overall portfolio performance. As a rule of thumb – the more data you store, the better prepared you are. However, for residents of the US, the most important thing here is always to be prepared with information about the base price of the cryptocurrency you are selling, especially when you are cashing out crypto for fiat money. For example, if you bought BTC at $3,000 and decided to cash out five months later after it hit $8,000, you will have to pay a short-term capital gains tax. The basis for taxation is the \$5, 000 that you have earned. Consider this tax as the equivalent to one’s income tax. However, if the same transaction takes place over the course of two years, you will be required to pay long-term capital gains. The general rule of thumb in many countries, the US included, is that long-term investors usually have lower capital gains taxes.

    If you are selling cryptocurrencies that you have mined yourself, then the situation is quite different, as the profit made is taxed as business income. Now about the case with the cup of coffee you bought with BTC. It is essential to keep records of the price of the coin at the time of purchase as, later on, when the time for dealing with the taxes comes, the transaction will be denominated according to the current price of the digital asset. The case is quite the same with crypto-to-crypto transactions. If you are buying Ripple with Bitcoin, you have to report the difference in the price of the asset you are selling (Bitcoin) at the time when you have bought it and when you have spent it on Ripple. Once you buy the new coin, you should record its price and keep it for the time you sell it when you will have to go through the same situation.

    The concept of cryptocurrency investment accounting may appear somewhat too complicated for non-accountants, which is understandable. One of the main reasons for that is the continuing lack of a focused effort from national tax authorities around the globe to issue detailed guidance on the treatment of digital currencies. In a chaotic situation like this, the most important thing to do, to keep yourself away from trouble with authorities, is to keep records of all cryptocurrency transactions that you are involved in. Most cryptocurrency exchanges help organize this by offering convenient trading data exports for free. Once you download all your transaction information, you can reach out to a professional accountant or seek assistance from traders that are more experienced in dealing with taxes to help you determine what you owe. It is advisable to do so, at least the first time you are filing your tax form, to avoid risks of missing crucial information or misrepresenting your taxable trading activity.

  • What cryptocurrency exchanges accept USD?

    Nomics currently lists 99 active cryptocurrency trading platforms that support USD trading pairs. You can buy cryptocurrencies with USD from: Binance, Bybit, Huobi Global, OKEx, FTX, Bitforex, Bitmex, HitBTC, Coinbase Pro, Phemex, Kraken, Bitfinex, DeversiFi, Bitstamp, bitFlyer, Liquid, Gemini, Delta Exchange, CoinField, Uniswap, and more.

  • How to start a cryptocurrency exchange

    In recent years, we’ve witnessed a significant increase in the number of active cryptocurrency exchanges. There are two main reasons for this – 1) the market is growing, and there is massive potential, and 2) it is easy to launch a cryptocurrency exchange. Let’s focus on the latter and analyze the process behind starting a cryptocurrency trading platform.

    In terms of technology, there are three main options that you may choose from when launching a cryptocurrency exchange:

    Build the platform from scratch

    Like any other software, this option guarantees a 100% propriety platform and grants you full control over its development and maintenance. However, it also comes at higher costs as you will have to hire an entire team of developers, designers, and consultants to take care of the security features, KYC procedures, payment processing services, etc. Bear in mind that currently, there is a shortage of blockchain developers, and you should have to set aside a higher budget to attract skilled professionals.

    The most important thing here is to perform an excellent initial analysis and try to estimate the total cost and length of the project. Building a platform from scratch is associated with constant development, maintenance, and upgrades, which will require an additional budget. Depending on your budget and the expertise of the team, the project may take 1-2 years or more to be concluded. Try to picture what the situation in the niche will be after that period and whether it will still offer the same profit opportunities.

    Open-source technology

    There are plenty of resources online in places like GitHub and other forums that provide open-source cryptocurrency exchange scripts. They grant a significant advantage as you get a solid technological base to get things going at a zero initial investment. Because the source code is free, however, it is essential to get your programming team to inspect it and improve it. They will also be able to add customizations and build new features. Overall, this way of working saves time and resources.

    However, it is worth noting that, due to their nature, open-source scripts can end up being less secure, with plenty of bugs, and even malicious code to serve as a backdoor. That is why it is imperative to ensure that there are security experts and experienced developers to inspect it.

    The most popular open-source protocol used for the design of cryptocurrency exchanges is 0x. Built on the Ethereum blockchain, the 0x protocol ensures the swift P2P exchange of ethereum-based tokens.

    White label software solutions

    There are also several options for white label solutions that you can use to kickstart your cryptocurrency exchange. The good thing about them is that they are proven to work and provide you with the flexibility to add modules, customize existing features, develop new functionalities, implement new languages and supported currencies, etc. White label solutions provide a solid foundation, consisting of a tested trade engine, wallet, admin panel, UI, charting features, third-party integrations, etc. The rest is up to you to tailor it according to the individual characteristics of your brand.

    White label solutions save you the trouble of having to deal with technical execution and ongoing maintenance. You also don’t have to pay for a new license as the system already has one. Bear in mind that a proper working exchange software usually is a combination of several modules and elements (trade engine, wallet, payment processing, etc.) that should work in perfect harmony. That is why using a time-tested solution often is the preferred choice.

    However, starting a cryptocurrency exchange is not only about figuring out the right technology. Another essential thing that you should also consider is where to do business. The truth is that the regulatory world doesn’t have a middle ground. While many countries ban cryptocurrency-related companies from operating on their territories, several much more liberal jurisdictions have made attracting cryptocurrency exchange projects the core of their strategic development. Malta, for example, is one of the countries with the best environment for launching a cryptocurrency exchange business. It has a dedicated portal that makes it easy to get familiar with the business climate there and helps navigate the whole process. The welcoming environment in Malta has led to a highly positive impact as the country became the home of several cryptocurrency exchanges, such as Binance, OKEx, ZB.com, etc.

    When choosing where to do business, make sure to figure out whether you are planning to operate locally or globally. Also, get familiar with the country-specific policies (KYC, AML). Before setting up your plan and to avoid missing crucial information, make sure to seek legal counsel that will help you get familiar with the regulatory environment within the country where you plan to set up the exchange. Bear in mind that you should get licensed not only by local authorities but also by the jurisdictions where you plan to conduct business.

    Of course, starting a cryptocurrency exchange requires additional considerations such as finding funding, organizing the operational structure, maintaining adequate customer support, dealing with third-party service providers, building liquidity, and so on. Yet, if you figure out the technology to power your exchange, as well as where to start your business, the rest will come naturally.

  • How to exchange cryptocurrency for cash (fiat), including USD

    One of the things that interest cryptocurrency beginners the most is how can they exchange their digital coins for fiat (USD, EUR, GBP, etc.). Answering this question, however, depends on the type of cryptocurrency that you would like to exchange for fiat. If you have a portfolio of altcoins, then the best way to proceed is to sell them for a more popular cryptocurrency like BTC, ETH, XRP, and others. After you have sold your exotic coins for one of the leading cryptocurrencies, you will have more options. Here are the five most popular ways to turn your cryptocurrency in fiat:

    1. Exchange cryptocurrency for fiat via an exchange

    This is the most popular way as most of the leading centralized cryptocurrency exchanges allow you to exchange crypto for fiat in a simple and straightforward procedure. Exchanges that allow for purchasing crypto with fiat are referred to as On-Ramps. Coinbase, Gemini, Bitstamp, Kraken, and many others support fiat transactions. All you have to do is link a preferred payment method, such as a bank account, a PayPal or else, that you can use for fiat funding and withdrawals. Bear in mind that if you want to cash out, most crypto exchanges require you to be compliant with their KYC and AML policies. Aside from that, some exchanges have withdrawal limits or withdrawal fees that you should take into account.

    Keep in mind that transfers to bank accounts take several days, but usually no more than a week. That is why, if you need to have your cash quickly, it is a better idea to consider one of the next options.

    2. Exchange cryptocurrency for fiat via P2P websites

    The next option is P2P platforms like www.localbitcoins.com. What they do is to match buyers and sellers and let them post their own bid and ask prices.

    You wonder how does the exchange happen and whether there is any risk of selling your coins without receiving the payment? Don’t worry – the website adopts an escrow service that eradicates the risk of getting scammed. Aside from that, before getting into a trade, you will be able to get familiar with its terms and conditions (when and how will you receive your fiat payment).

    Once both parties agree on the transaction terms, the cryptocurrency you are selling will be transferred to the platform’s escrow account. The buyer will release the agreed amount of fiat in the same way. Once you receive the payment, you confirm to LocalBitcoins.com that it is all good, and the crypto is then released to the buyer.

    Some use the mentioned P2P platforms to arrange meetings with buyers/sellers in person, where they can fulfill the exchange face-to-face. Although this helps you avoid paying the platform’s fees, it increases the risk of getting robbed or scammed, so be careful with such an option.

    3. Exchange cryptocurrency for fiat via an ATM

    If you happen to live in a city that has a crypto ATM, then you have another easy option to take advantage of. Bitcoin ATMs are convenient ways to convert crypto to fiat. The major downside is that they charge relatively higher fees when compared to exchanges or P2P marketplaces.

    Cryptocurrency ATMs usually work the same way as traditional ATMs. The difference here is that once you enter the amount you want to exchange for cash, you will be provided with a wallet address to transfer the cryptocurrency to. After you finish the transaction, the ATM will release the cash. If the transaction takes too long to be completed, you will be provided with a redemption code that you can use and get your cash from the ATM later.

    It is worth noting that the exchange of bigger sums at some ATMs may require ID verification.

    The good thing with cryptocurrency ATMs is that their popularity is increasing continuously, and they are becoming widely accessible (check the graph about the growth in the number of ATMs worldwide). New Bitcoin ATMs are launched literally every day. If you want to find out where is the closest crypto ATM to you, check here. The website provides information about the ATM’s operator, the fees that it charges as well as the supported cryptocurrencies and withdrawal limits.

    4. Exchange cryptocurrency for fiat via a cryptocurrency debit card

    Cryptocurrency debit cards are similar to traditional debit cards. All you have to do is to top up your account with a cryptocurrency of your choice, and you will then be able to convert it into USD or another currency easily. Crypto debit cards offer numerous advantages - instant conversion from crypto to fiat, lower commission fees, accessibility that allows you to use them at ATMs or PoS systems at retailers to purchase goods and services, etc.

    Bear in mind that cryptocurrency debit cards are not yet supported in all countries. If you are using a debit card in a country that is not supported, you will have to pay an additional fee for FX conversion.

    Aside from that, getting a debit card requires identity verification that includes submission of government-issued ID, proof of address, and other personal details that are usually collected from KYC-compliant service providers.

    It is worth mentioning also that getting a cryptocurrency debit card initially usually takes a bit longer when compared to the time it takes to exchange crypto for fiat via an exchange or a P2P marketplace. Crypto debit cards also have limits on how much you can withdraw. The good thing here, though, is that you can increase the limits by passing through a stricter verification procedure.

    5. Take out a loan instead of selling your coins

    Another option worth considering is loaning out your cryptocurrencies. This works the same way as a mortgage scheme. You put your crypto as collateral and get fiat for it. Then you proceed to pay back the way you do with traditional loans. Your coins are kept under the rules of a smart contract that guarantees their safe storage.

    Cryptocurrency loans are becoming increasingly popular due to the flexibility they provide. They are also preferred as they allow you to avoid a taxable event (a sell of crypto) but still take advantage of fiat money whenever you need it. Aside from that, you won’t have to go through all the buying and selling once you decide to get back in cryptocurrency investments, as the coins will remain your property. That way you will save time and avoid paying fees should you decide to buy crypto in the future.

    One of the most popular cryptocurrency loan services is Nexo.io. It allows clients to set up an insured account and borrow more than 45+ fiat currencies instantly. The client isn’t required to go through credit checks, and there are no minimum repayments. Those who decide to lend their cryptocurrencies, on the other hand, can earn daily interest.

  • How to get a new cryptocurrency listed on an exchange

    The main goal of new token projects is to get listed on a major cryptocurrency exchange, as this increases their market potential significantly. But not every exchange can shoot token projects in the stars. Getting listed on a leading platform with high liquidity and fiat on/off ramps support compared to a not-so-popular crypto-to-crypto exchange can result in a difference of millions of clients. The truth is that even projects with the highest potential may fail to live up to it if they can’t reach a wider audience. That is why the competition among token projects to get listed on one of the top crypto exchanges worldwide is so fierce.

    So, what should you do to get a new cryptocurrency listed on an exchange? The straightforward answer to this question is that it varies depending on where you want to get your project listed. Different exchanges have different terms for including new tokens. That is why the best thing to do is to get familiar with the requirements of each of your preferred exchanges and to approach the platforms one-by-one.

    Although the requirement of the separate trading venues may vary, the procedure that you must follow is pretty much the same for all of the leading exchanges. It can be summarized in the following key steps:

    1. Choose an exchange and apply

    The first obvious step is to choose the exchange you want to get featured on. Most project owners usually aim at the top-level platforms, which is understandable, considering the skyrocket effect they can have on a particular cryptocurrency if it gets listed. However, there are a few things to consider here, such as the competition, listing policy, and fees (more on this in a moment).

    Let’s assume that you’ve already chosen the exchanges you want to get listed on. The next step is to apply to their programs. Most of the time, you will have to fill out an online form where you will describe the name and the description of the token, how can investors earn it, whether there are any trading specifications, what are the token holders’ rights, if any, etc. You will also have to provide them with the whitepaper to help the exchanges’ representatives get familiar with the project’s roadmap, the team behind it, and your goals. Try to provide as much details as possible. In a world where leading cryptocurrency platforms try to build credibility and distinguish themselves from the world of scammers, and pump-and-dump schemes, they make everything possible to stay away from listing shady or suspicious projects.

    When you apply, the exchange team will usually perform a preliminary analysis of your project. Some platforms will let you know whether you qualify right away. However, others may require to go through a more in-depth review. During the detailed analysis, the listing team may require you to provide additional documents to confirm the authenticity of the information. You will, most probably, be requested to sign a non-disclosure agreement.

    Coinbase’s listing policy is a good starting point and an example to help you find out what information you may be required to provide. You can also check the online form of Poloniex and Switcheo for further reference. If you want to get familiar with the requirements of decentralized exchanges, you can take a look at the IDEX exchange’s guide.

    2. Deal with the corporate stuff

    Exchanges list projects that are run by active companies, registered under an official jurisdiction. Bear in mind that conceptual ideas run by a group of enthusiasts that aren’t linked together under the rules of corporate law, won’t make the list.

    Aside from that, most platforms require account verification for the leading members of the team. Some may require information only for the CEO of the company, while others will insist on having all shareholders or team members having a certain degree of control over the company (above 10%, for example) to get verified.

    3. Get a legal opinion letter

    Although this isn’t a mandatory requirement for all platforms, the leading exchanges in the US won’t get you listed without it. The idea of a legal opinion letter is to have a lawyer who makes an official confirmation that the project isn’t a security. In most cases, the legal opinion should be issued from law firms that operate in the same jurisdiction as the company that runs the project.

    Regarding the requirement for tokens to not be classified as securities, many platforms explicitly instruct teams to adhere to the Howey Test (a precedent from a 1946 Supreme Court case that helped SEC establish a clear framework for securities classification). In fact, the DAO tokens, one of the biggest crowdfunded cryptocurrency projects in history, failed the test and were declared securities by the SEC.

    4. Smart contract security audit

    Some exchanges also require for the project to pass a smart contract security audit. The procedure is pretty straightforward, and you can easily find companies that offer such a service. However, it may take up to a month to finish the whole procedure.

    Also, here, we should mention the technical side of things. Most platforms require you to upload the source code of the project on GitHub. Their technical team will then perform due diligence and will come out with a statement on whether they see any potential issues. The idea is to make sure your project is well-delivered in terms of a technical standpoint and that there are no risks for fraudulent activities (malicious lines of code, security concerns, and potential backdoors or loopholes).

    5. Get and remain listed

    Once you are compliant with all the requirements of the particular exchange and if your project is selected, it will get listed. However, bear in mind that there are also platforms that don’t have an established procedure for token project listing. Some of them analyze on a case-by-case basis. Others, like Poloniex, for example, state that they “listen to the community” and select unique and innovative projects that may be of interest to their clients.

    In a bid to increase their market potential, token project owners usually try to list their assets on as many exchanges as possible from the start. However, this is not an easy task as it requires having a massive budget to cover the listing fees of each platform. Cryptocurrency exchanges currently try to exploit that niche by setting very high listing fees. According to a Business Insider research, cryptocurrency exchange listing fees range from a few thousand dollars up to a million. It is worth noting that most platforms don’t explicitly state their listing fees on their websites. What they do, most of the time is to mask the full cost of the listing process under several minor fees charged for procedures, such as market entry or “due diligence” to confirm that your project is good-to-go. Coinbase, for example, points out that they don’t charge an application fee initially. However, they state that they reserve the right _“depending on the volume of submissions, to impose an application fee in the future to defray the legal and operational costs associated with evaluating and listing new assets.” _This may often confuse token project owners as they can’t be sure what fees (if any) to expect in the future.

    What this means is that cryptocurrency exchange listing fees are way higher than those of traditional stock exchanges like NYSE or NASDAQ. The NYSE, for example, has set a limit of $250,000 as the maximum fee that an issuer of an ETF product can be charged per year. For stocks, NASDAQ rarely charges over $80,000. As can be seen, stock market fees are clearly defined and way lower than those of crypto exchanges.

    This often is a stumbling block in front of projects with lower budgets, which is why many consider the market unfair. Projects that can’t afford the hefty listing fees of leading exchanges can opt for decentralized exchanges like EtherDelta, for example. The platform lists the majority of the Ethereum-based tokens at no cost. However, the problem with decentralized exchanges, at the time of writing, is that they still struggle to generate high trading volume.

    It is worth noting that there are some centralized trading platforms like Bittrex, that list projects for free. Even market leaders like Binance have made a step in the right direction by providing token issuers with the flexibility to choose the amount of the listing fee that they want to pay. There is no minimum set by the exchange, and all collected listing fees are donated.

    Those who can’t afford the high listing fees but still want to try to get featured on a top tier exchange can take the alternative path, offered by platforms like Binance. What they do is to organize a monthly coin vote among the holders of their BNB tokens. Clients can choose one project from a list of preselected tokens and vote. Each vote costs 0.1 BNB.

    It is essential to bear in mind that, although leading platforms receive thousands of applications, they list just a few projects every week. This only comes to show how strong the competition in the field is. So, if you get rejected, try to find out what were the reasons for that and come back with an improved application.

    Another thing to keep in mind is that once listed, there is no guarantee that your token will remain trading on the exchange forever. Just the opposite – some platforms may proceed to delist your token if it doesn’t generate enough trading volume. This may happen as soon as 3 or 6 months after you have been listed. So, make sure to find the perfect timing for your launch.

    Aside from that, don’t get your expectations too high or get too encouraged if you experience a skyrocket boom once you get listed. The potential of your idea aside, this may be due to pure market mechanics. Traders usually have a thing for newly-listed and unexplored assets as they often pose a greater risk, thus a higher profit potential. The case is the same even when a new stock is listed, as its first market direction usually is upwards (although the risk there is way lower as the whole process is strictly regulated). What this comes to show is that you must proceed with marketing your project even after it is listed. Don’t rely on past glory as a sudden drop in the investors’ interest may result in lower liquidity in the long term, which may get you delisted. Bear in mind that the place of your project on the exchange is precious, and there are hundredths of other projects that are in the queue to take it. In an effort to further monetize the cryptocurrency project listing process, some exchanges offer services like “spotlighting” or “suggesting” projects. This basically means that you can pay the platform to promote your project among its clients, thus attract more investments. If you think it is worth it, then go ahead and try it.

    If you find the whole token listing procedure too complicated or time-consuming, you can always hire a company to handle it for you. There are token listing and promotion services that guarantee that you will get listed on a particular platform and will take care of the marketing part for a certain fee.

  • How do cryptocurrency exchanges work?

    To understand how do cryptocurrency exchanges work, we will explore the mechanics behind the two common types of digital asset trading platforms – centralized (CEX) and decentralized (DEX). Centralized and decentralized exchanges differ from each other in their operational model and governance. Here is how each of them works:

    Centralized cryptocurrency exchanges (CEX)

    Centralized crypto exchanges serve as intermediaries that are run by a third-party operator. Similar to traditional stock exchanges, centralized cryptocurrency exchanges connect buyers and sellers and allow them to trade coins for fiat money or other cryptocurrencies. In order to make that happen, exchanges serve as an intermediary, ensuring the stability of the trading environment, constant monitoring of trades, order book management, and compliance with regulation (in some cases). However, unlike typical stock exchanges which have fixed trading hours, most centralized crypto trading platforms are open 24/7.

    It is worth noting that different cryptocurrency exchanges offer different prices for the assets they list for trading. That is all because of the pricing mechanics. The rate at which a particular asset is traded is driven by the supply and demand on each platform. Each exchange has its own order book that contains all buy and sell orders for all trading pairs. Usually, the highest buy price becomes the official market price (bid) for the particular asset. The case is the same when it comes to sell orders – the lower price at which someone wants to sell a specific cryptocurrency becomes the official market price (ask). However, it is worth noting that the order book doesn’t exactly reveal what trading activity takes place in reality. In fact, it shows traders’ intentions, most of which may never materialize. If you want to find out what other investors are actually paying to buy cryptocurrencies, you should check the trade history. The basic rule of thumb, when it comes to crypto exchanges, is that the bigger the platform is, the fairer pricing policy it offers. Or in other words – more liquidity means more stable and fair prices.

    If you want to find out the average price of Bitcoin, at the moment, you can do a Google search. What news aggregators do is to calculate an average price based on the rates for the particular asset on the most popular exchanges. The fact that the price of a specific asset can vary from one exchange to another creates arbitrage opportunities that are exploited by more advanced traders. What they do is to buy the asset from an exchange where it is trading cheaper and to sell it on another where it is traded at a higher price. Usually, the pricing from one platform to another varies in the range of 1-2% but can go as high as 5%.

    But how does the trading process on exchanges really work on practice? Once you make an account on your preferred exchange, you will have to go through an initial verification procedure and adhere to the employed KYC/AML policies (if there are such). Upon successful verification, you will be able to fund your account and make your first trade. Let’s say that you are interested in trading BTC. If you are buying, you offer a maximum price-per-BTC. On the other hand - if you are selling, you offer a minimum price-per-BTC. For example – let’s assume that you want to buy BTC for \$1,000. All you have to do is to place your bid order. Then the exchange’s matching engine automatically finds a reverse order suitable for your request, or in this case – someone who is willing to sell BTC. If the bid exceeds the ask price, the exchange matches them, and your transaction is executed.

    Centralized crypto exchanges employ the maker-taker model that allows them to charge commissions from both trade parties – the one making liquidity and the one taking liquidity. They may also charge additional fees for account deposits, withdrawals, or else. Before choosing a crypto exchange, make sure to get familiar with its fee policy.

    Centralized exchanges are usually more user-friendly and the better choice for beginner traders as they provide everything needed in one place. They have an integrated wallet (although it isn’t advisable to use it), a variety of payment methods, higher liquidity, an intuitive user interface that doesn’t require prior technical knowledge, and other advantages. However, over time, some people started running away from centralized crypto exchanges in a bid to get more autonomy and handle their crypto trades independently.

    Decentralized cryptocurrency exchanges (DEX)

    Some cryptocurrency proponents often argue that centralized exchanges don’t represent the core idea of cryptocurrencies, which is decentralization and the elimination of middlemen. That is why decentralized exchanges were born.

    Decentralized crypto exchanges don’t have any governing body. They are run by the whole community and on the principle of consensus. They are transparent as each decision is taken by voting, which helps bring the trust back into the system.

    Decentralized exchanges work on the principle of putting all the processes in the hands of traders. They are the ones responsible for their trades, storage of funds, transactions, etc. They even vote collectively on issues that are crucial for the development of the platform.

    Decentralized crypto exchanges, most of the time, are built via an open protocol, called 0x. Most DEXs operate on the principle of smart contracts. Smart contracts are the digital form of legal agreements. They include a set of rules and requirements which usually work on the if/then principle. This ensures that the organization remains independent, incorruptible, stable, and transparent.

    Decentralized exchanges work on a P2P basis as they allow traders to interact and trade with each other, without any interference from a middleman. This means the exchange isn’t responsible for any data collection or asset storage. All it does is to provide the infrastructure where traders can execute their trades.

    This brings asset pricing mechanics in the hands of users. There are no additional fees to ensure the profit of the platform, which guarantees a fairer pricing model.

    The major downside of decentralized crypto exchanges is their lower liquidity. This means some users may end up waiting for extended periods of time until their orders are executed, which may lead to the loss of potential profit opportunities. Aside from that, DEXs don’t offer fiat trading. They are also not so user-friendly and often have trade limitations.

    However, they have several positives, as well. For example, their nodes are distributed, which means there is no central governing body to be the sole target of a hacker attack. It also means there is literally no risk of platform downtime as the distributed nodes keep the infrastructure going permanently. DEXs also guarantee complete privacy as 100% of the trades,

  • How do I use a crypto exchange API?

    APIs (application programming interfaces) are a mainstay in today’s financial world. An API is a software that ensures the smooth interaction between two sides (applications or an application and a user). In the cryptocurrency world, APIs are used to build the link between two parties, such as a user and a product company, a service provider, an exchange, a market data company, a trading app, etc. In a nutshell, what APIs do is to transfer information - get your request, pass it to the system, and then inform you about the system’s response.

    In the cryptocurrency world, one of the main problems that APIs solve is related to trading information. For the broad public to have access to clean, normalized, and gapless trading data, the developers of the particular service/app, have to handle lots of work processes (deriving, cleaning, and maintaining datasets, to name a few).

    At Nomics, we have developed a crypto market data platform, enabling market participants such as investors, analysts, and market makers to computationally access clean and normalized primary source trade and order book data. Our API provides direct, streamlined access to price and exchange rate data from all major exchanges, including Binance, Coinbase Pro, Gemini, Poloniex, and others. Instead of integrating each platform’s API, you can process everything via the Nomics API. The API is widely used by hedge funds, quant trading companies, fintech developers, and other market participants.

    How to use a crypto exchange API depends on what you want to build with it. For example, our API provides unlimited options as you can develop and integrate mobile apps, charting tools, algorithmic trading solutions, backtesting and portfolio valuation tools, pricing portals, and informational websites.

    The most important skill when it comes to interacting with a crypto exchange API is the proper understanding of financial data, including market mechanics, price formats, order book management, and so on. However, there are several technical skills that we should also mention here. To work with a crypto exchange API successfully, it is necessary for the user to be familiar with databases and HTTP requests, as well as to be experienced in working with JSON and CSV data. If we assume that you want to build an entry-level financial portal that reports cryptocurrency pricing information, all that is needed is an HTTP GET request and a basic JSON analysis.

    In the case of API integration for the goals of crypto exchange businesses, all you need to start running the Nomics API is to expose three private endpoints, which takes no more than 4 to 8 hours of development time. That way, we would then be able to provide dozens of additional API endpoints, allowing users to retrieve and format market data in various supported formats.

    All in all, our API allows for convenient interaction as all features are navigated through requests (we support Shell, NodeJS, Ruby, Python, and JavaScript). A complete tutorial and samples of requests that you may need are available in our Cryptocurrency API documentation.

    You can find more technical information about how to use our crypto exchange API in its doc section and our forum.

  • What Is a Crypto Derivatives Exchange?

    A crypto derivatives exchange is a marketplace for trading financial instruments that derive their value from cryptoassets. Derivatives are not the assets themselves but constructs that track asset prices. A crypto derivatives exchange might offer products that follow the price of Bitcoin (BTC), Ethereum (ETH), or a basket of altcoins.

    Derivatives are commonly used to manage the risks associated with holding assets. They're also favorites of speculators.

    History of Derivatives

    In the late 19th century, American farmers began using derivatives known as futures contracts to guard against oversupply, crop failure, and other risks. For example, an apple farmer could sign a futures contract to deliver his crop for $1 per kilo in October. In doing so, he'd lock in his target price regardless of weather and market conditions. The counterparty might be hedging another bet or speculating on an apple shortage.

    Though still popular with farmers, derivatives have evolved to cover more than agricultural products. Today, there are derivatives for stocks, bonds, currencies, market indices, and cryptoassets.

    Futures vs. Options

    As the name implies, futures contracts are settled in the future. So are options contracts.

    Like futures, options are derivatives that are used for hedging and speculation. In the above example, the apple farmer signed a futures contract, which means that he entered into a binding agreement to sell his apples for $1 per kilo in October. Had he taken an option instead, he'd have the right to sell, but he would not be obligated to do so. He'd be within his rights to field better offers. For that flexibility, he'd have paid a premium, the cost of the right but not the obligation to sell.

    Crypto Derivatives Exchanges

    Some crypto exchanges, like BitMEX and Deribit, specialize in derivatives. Others, like OKEx and FTX, offer derivatives and spot trading. Unlike futures and options, spot trades are settled instantly.

    A crypto derivatives exchange may be centralized or decentralized. To facilitate trading, centralized exchanges take custody of user keys, the series of characters that correspond to blockchain addresses and represent crypto ownership. This custodial role obliges centralized platforms to perform Know Your Customer compliance, a series of questions to establish user identity.

    Decentralized derivatives exchanges like dYdX do not custody keys. Rather, users interact straight from their crypto wallets via smart contracts, scripts that automatically execute when programmed conditions are met.

    Centralized exchanges are generally faster and cheaper, but decentralized exchanges let users retain control of their funds and identities.

  • What Are Crypto Derivatives?

    While some crypto exchanges offer dozens of derivatives products, others stick to futures and options. Futures are binding agreements to buy or sell assets for a certain price at a certain time. Options represent the right but not the obligation to buy or sell.

    Crypto Futures

    Initially priced by market makers, crypto futures rise or fall in value based on supply and demand. These changes may track spot prices, the going rates for assets that are traded immediately.

    The difference between futures and spot prices, which can be positive or negative, is referred to as the cost of carry or basis. Basis varies, but by a contract's expiration, it will always be zero.

    Why Trade Crypto Futures?

    Holders of futures contracts don't own the underlying coins, so they have no voting or staking rights, but futures offer benefits that spot can't match.

    Futures Are Capital-Efficient

    Alice expects the price of Bitcoin to rise. She'd like to bet big but only has a tenth of a coin. Then she hears about a derivatives exchange that lets her pledge her sats as collateral for a much larger position. This is known as leverage, and it's one of futures' main advantages.

    It should come as no surprise that leverage adds risk. If Alice is wrong about Bitcoin, she'll lose her collateral. Had she traded spot, she'd be in the red, but she could HODL til the market rebounds.

    Futures Are Flexible

    Spot traders only profit when "number go up." Futures let traders profit in bull and bear cycles.

    Alice went long. That is, she bet that Bitcoin's price would increase. She could have gone short or bet that Bitcoin would slip. Or she could have hedged by opening a short position before spending her remaining sats on the spot market.

    Experienced traders mix long and short positions. While many miners sell their rewards on exchanges, HODLers among them use shorts to manage risk.

    Futures Are Liquid

    Top crypto exchanges have deep order books – especially for commonly-traded assets – but the derivatives market is even bigger. High rollers who wish to secure steady prices may have an easier time on derivatives exchanges, where they are more or less guaranteed to find willing counterparties.

    Crypto Options

    Options are less risky than futures contracts. If Bob thinks Bitcoin is trending up, he could purchase a call option representing the right to buy BTC at a certain price. If the market cooperates, he can exercise the option and rake in the difference between his strike price and wherever the upswing takes him. If the market goes the other way, he'll lose his premium but not his bags.

    Brief History of Crypto Derivatives

    Crypto enthusiasts were trading derivatives within a couple years of Satoshi Nakamoto's whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System. ICBIT, the first crypto derivatives platform, appeared in 2011. It featured markets for BTC/USD, Bitcoin difficulty, Litecoin (LTC)/BTC, and other benchmarks.

    But ICBIT was neither a modern derivatives exchange nor a counterparty to the deals it brokered. According to its website (now defunct), "In the worst case scenario, your profit is always limited by ability to pay of counterparties to your contract."

    Crypto derivatives didn't take off until mid-2016 when BitMEX debuted its XBTUSD perpetual swap, a Bitcoin futures contract with no expiry date.

    Perpetual swaps offer two main advantages over futures. Futures have expiry dates, and supply and demand cause prices to decouple from going rates. Holders of perpetuals can keep their positions indefinitely while closely tracking spot prices. The latter thanks to perpetuals' "funding" mechanism: if a swap is trading higher than the spot price, buyers – those holding long positions – pay a fee to sellers. If a swap is underperforming, sellers pay a fee to buyers. This keeps perpetuals in line with spot.

    Today, perpetuals are available on several platforms, and more volume flows through crypto derivatives than the spot market.

  • What Is a Leveraged Token?

    Leverage is a key feature of derivatives. It lets traders pledge a small amount of collateral for a large position. However, if the market turns against a trader, they have to send more collateral or the exchange will close them out and take their pledge. Leveraged tokens abstract all that by running perpetual futures contracts behind the scenes.

    Alice believes Bitcoin is undervalued and buys BULL/USD, a leveraged token granting 3X long exposure to Bitcoin. She spends $100 and gets $300 of BTC perpetual futures. Should Bitcoin pump, her token will automatically reinvest her profits at 3X leverage. If the opposite happens, her token will reduce risk until Bitcoin falls 33%, at which point her position will be liquidated and she'll lose her $100.

    Her leveraged token allows her to place an outsized bet without knowing anything about futures or perpetuals. All she sees is BULL/USD, an ERC20 token.

    Like any ERC20, leveraged tokens can be purchased on the spot market. They can be swapped for other coins, redeemed for net asset value, stored in Ethereum wallets, or sent to any platform that lists leveraged tokens. As of this writing, options include BitMax, gate.io, GOPAX, Poloniex, and FTX, the exchange that created leveraged tokens.

    Since its 2019 launch, FTX has been a leader in crypto derivatives trading. For more, check out Flippening episodes 54 and 55, The Insane Growth of Derivatives Exchange FTX with FTX's CEO, Sam Bankman-Fried.

  • How Do I Trade Crypto Derivatives?

    Crypto derivatives are instruments that derive their value from cryptoassets. Derivatives can be traded on exchanges like BitMEX and Deribit, which specialize in derivatives, or platforms like OKEx and FTX, which offer derivatives and spot trading.

    Derivatives exchanges may be centralized or decentralized. Centralized exchanges tend to be more user-friendly and less expensive, but they take custody of user keys, the alphanumeric series that represent crypto ownership. Because decentralized exchanges facilitate trades with self-executing smart contracts, users are free to self-custody.

    KYC

    By holding user keys, centralized exchanges can offer experiences like those found on popular banking apps. But acting as middlemen obliges these platforms to perform Know Your Customer (KYC) compliance, questions that establish identity to prevent crimes such as money laundering and the financing of terrorism.

    There are many ways to handle KYC. FTX splits it into tiers. The more a customer shares, the higher their withdrawal limit. KYC begins at Tier 0, which is an email check. The next tier is email, name, and country of residence. The third tier covers everything from full name, date of birth, and address to proof of address, government ID, and face ID. With third-tier clearance, customers enjoy unlimited crypto and fiat withdrawals.

    Unlike FTX and other centralized platforms, dYdX is a decentralized derivatives exchange. It doesn't hold keys, so there is no KYC. Traders engage pseudonymously from their wallets.

    Keeping Keys Secure

    While it's improbable that an established centralized exchange would walk off with customer funds, there's always a chance that a hacker or malicious insider could gain access. To prevent this, BitMEX stores all Bitcoin in a cold, multi-signature wallet. The BTC is kept offline, and in order to spend it, two of three parties must sign the transaction. Deribit also keeps Bitcoin in cold storage.

    Fees

    When it comes to deposits and methods of payment, there is diversity among derivatives exchanges – BitMEX and Deribit only accept Bitcoin deposits while FTX supports several cryptos and fiat – but it's rare that traders will be charged deposit fees.

    Each exchange handles withdrawal fees in its own way. Bybit maps withdrawal fees to the value of the coins being withdrawn. A Bitcoin is worth more than an Ethereum token, so the fee for withdrawing Bitcoin is 0.0005 BTC while the fee for Ethereum is 0.01 ETH.

    BitMEX charges no withdrawal fees beyond those assessed by the Bitcoin network. FTX doesn't charge withdrawal fees either, and users who stake its proprietary token (FTT) are exempt from network fees for ETH, ERC20, and Omni withdrawals.

    Transaction fees depend on whether a trader is a "maker" or "taker". As maker orders add liquidity to exchanges, they are typically less expensive than taker orders, which are executed instantly and remove liquidity.

    Collateral, Margin & Liquidation

    To open a leveraged position, a trader must pledge collateral. If the value of their collateral drops below their maintenance margin, they're asked to correct by pledging more assets. Otherwise, their position will be liquidated.

    Bob puts up $1,000 in Bitcoin to open a 10X leveraged position. He expects the price to rise. If it does, he'll make $100 for every 1% increase. If BTC dumps, he'll lose $100 for every percent.

    But this isn't the spot market. If Bitcoin crashes, he won't be permitted to HODL through it. 90% of his position was borrowed from the exchange, which will only let Bitcoin slip 10% before closing him out. In reality, less than 10% because there are fees associated with forced liquidations.

    Before closeout, he'd likely receive a margin call. A margin call is a notice informing a trader that they have to contribute additional collateral to stay in the game.

    When it comes to keeping traders in their positions, some exchanges are friendlier than others. OKEx uses a tiered system. The more a trader borrows, the higher their maintenance margin. If the value of a trader's collateral falls below their maintenance, their position will be partially liquidated or reduced to a size that complies with the requirements of a lower tier. Full liquidation only occurs when the market pushes a trader below the requirements of Tier 1, currently 5%.

    What Is Leverage?

    Leverage is the mechanism by which a trader can control a whale-sized position for a fraction of its value.

    Alice is sure that Bitcoin is about to take off, but she has little money to profit from the upswing. Leverage lets her pledge whatever collateral she has for a position that matches her conviction. She can win big on minor moves – up to 125 times the profit she'd earn on the spot market.

    The amount of leverage varies by exchange. Binance Futures sets a default of 20X but allows up to 125X. The max leverage offered by BitMEX is 100X.

    Leverage is often quoted as a margin requirement. At 1% initial margin, a trader can open a million-dollar position for $10,000.

    Crypto Derivatives Products

    While many derivatives platforms stick to futures and options for the top cryptos by market cap, Binance Futures supports the majors plus a number of altcoin pairs. In all, it offers more than 90 derivatives contracts including perpetuals, options, and leveraged tokens.

    The FTX product line may be even more extensive. FTX derivatives track everything from cryptoassets to stocks, commodities, politics, and sporting events.

  • What Are the Benefits of Crypto Derivatives Trading?

    Derivatives let traders bet on the crypto market without purchasing and storing cryptoassets. At the same time, derivatives provide HODLers with a way to insure their bags against volatility.

    How Traders Use Derivatives

    On derivatives exchanges, traders can secure large positions with small amounts of collateral. This is called leverage, and it's the principal driver of new customers to the crypto derivatives space.

    The amount of leverage varies by exchange, but some offer north of 100X, which means that a trader could pledge $1,000 of Bitcoin to control a position worth $100,000. If BTC moves 1% in the right direction, they'd double their money. Of course, if BTC goes the other way, they'd be out of business, but a growing number of traders will happily take that risk.

    How HODLers Use Derivatives

    Derivatives were developed as a type of insurance. In the late 19th century, farmers entered futures contracts to deliver their crops at certain times and prices. In so doing, they guaranteed themselves predictable prices regardless of weather or market conditions.

    These days, HODLers use crypto derivatives to profit from corrections. Bob holds Bitcoin, and he's in it for the long haul. To unlock his equity, he gets a crypto credit line. As the market trends up, the increasing value of his collateral offsets fees and purchases. But what if the market tanks? He'll have to add more collateral to keep his credit line open. Alternatively, he could fund the shortfall with proceeds from a put, short, or other downside bet.

    Win in Bull & Bear Markets

    Spot traders only make money when their assets increase in value. Derivatives traders earn in bull and bear markets.

    In the above example, Bob could have written a put option to profit from a price collapse. That is, he could have purchased an option representing the right to sell Bitcoin at a certain strike price. If Bitcoin fell from $50,000 to $40,000 and his strike price was $49,000, he would have pocketed $9,000.

    An option represents the right but not the obligation to buy or sell. This differs from futures contracts, which are binding agreements. Bob has the right to let his option go unexercised – just as a farmer with an option to sell is free to sell to a higher bidder.

    Low Slippage

    Derivatives offer high-net-worth individuals and institutions a way to trade cryptoassets without experiencing slippage or a discrepancy between the expected price of a trade and the price at which it is executed.

    Slippage occurs when there aren't enough counterparties. A large order will be partially filled at going rates before "slipping" through the order book to the next best offer and the next best after that until ultimately, the trader ends up with an overall price that is less desirable than they anticipated.

    In cryptoasset trading, slippage is likely to occur when liquidity is low. This is less of a concern on major exchanges, but it can occur in the busiest of markets. To secure steady prices, whales split trades across multiple exchanges, engage crypto OTC desks, or trade derivatives.

    According to an April 2021 study from the Tepper School of Business at Carnegie Mellon University, "On average, the traded volume in cryptocurrency derivatives markets exceeds the regular crypto spot markets by a factor of five." These findings rhyme with a November 2020 report from Kraken, which concluded that the crypto derivatives market is typically 4.6 times larger than the spot market.

    As crypto goes mainstream and institutions pile in, the gap between spot and derivative volumes will only increase.

  • Are Crypto Derivatives Risky?

    A spot trader buys a cryptoasset hoping it will appreciate in value. If it does, they can take profit or, if they believe in the token's future, HODL for the long-term.

    Crypto derivatives let traders gain from up and down markets, but only the most sophisticated deploy strategies that include long and short positions. Amateurs focus on leverage. They take highly leveraged positions and either long or short.

    The Cost of Borrowing

    But this only works when the market cooperates. When it doesn't, there's no HODLing til conditions improve. Traders who place bad bets get margin calls or emails requesting additional funds. If they don't comply, their positions are liquidated and their collateral claimed by the exchange.

    Leverage is other people's money. If a trader longs with 10X leverage, they've borrowed 90% of their position from an exchange. Once the market drops 10%, the exchange is on the hook for subsequent losses. From the exchange's point of view, collateral is the price paid for a shot at outsized gains. It's the cost of borrowing.

    Crypto Derivatives Are Complicated

    Derivatives traders must be reasonably comfortable with concepts like cost of carry or basis (the difference between futures and spot prices), expiry dates, collateral, margin, liquidation, strike prices, leverage – the list goes on. Then there's all the jargon and the countless strategies for understanding and beating the market.

    Spot is simpler. If "number go up," profit. If "number go down," sell at a loss or wait for prices to rebound. There are fewer moving parts and less that can go wrong.

    How Derivatives Affect the Crypto Market

    Derivatives magnify risk and reward for individuals and the market as a whole. In response to the financial crisis of 2007-2008, Warren Buffett declared that derivatives were "financial weapons of mass destruction."

    It's a fair point. In the crypto market, derivatives sharpen price swings. In May 2021, an uptick in spot selling resulted in the liquidation of $8 billion in long positions. The month prior, a pullback from Bitcoin's all-time high forced derivatives exchanges to liquidate approximately $10 billion. In both cases, the liquidations exacerbated the downtrend, sending prices into free fall.