Top Crypto Futures and Derivatives Platforms, and What We Can Learn from Them

Crypto futures and expanded derivatives platforms have exploded in popularity in the last two years.  This has been both excellent in terms of having many choices for a platform that matches your goals and tastes, but also wary in that with growth this fast, there are bound to be platforms that do not have your best interests in mind.  However, there are platforms available for every investing strategy and every major chain, and many are worth noting for their high quality and unique features.  

Let’s take a look at four of the best unique platforms, but let’s first dive into the basics of derivative based trading, why you would want to participate, and some of the risks.  Once we see what these four platforms have to offer, we will take a step back and look at the industry as a whole to see what bigger lessons can be learned from derivative trading.

First, the big question:  What exactly are derivatives?  Well, picture a basic financial market, where you can buy and sell stocks or tokens for the current market price.  If these are the primary assets, then the derivatives of these assets are different contracts that represent buying or selling an asset at a speculated price in the future.  Derivative trading is betting on your guess that a given asset will be higher or lower than it is right now.  These derivatives can take many forms, including:

• Swaps, where two parties agree to exchange cash flows, often in the form of interest rate swaps (eg, a fixed rate for a variable rate).
• Futures, where two parties agree to trade an asset at a predetermined price and date.
• Forwards, which are the same as futures but occur at an over-the-counter exchange, and therefore have higher risk.
• Options, which are similar in structure to Futures, except there is no obligation for the buyer to execute the trade, which results in forfeiting a deposit.

Now that we understand the types of derivatives, it’s also important to understand why people would want to trade using derivatives instead of directly investing via assets.  Another element of trading with derivatives is the concept of leverage, where traders provide collateral to trade with a higher amount, sometimes over 100x, in order to amplify their winnings.  This can have the opposite effect and cause them to lose the entire collateral, so it isn’t a “free lunch”, but rather another tool for traders to use.  There are three key motivations for derivative trading:

• Instead of trading tokens that have extremely high volatile swings, many traders lower their risk by trading derivatives instead.  This doesn’t reap the same rewards, but the potential losses are reduced as well.
• Other traders may use derivatives trading as a hedge against their direct asset investments, instituting shorts and puts in order to ensure limited losses should their asset’s value swing the wrong direction.
• Some traders use derivatives simply to bet on price speculation.  All types of derivative trading could be considered placing a bet on a future event, and this is the right mix of risk/reward for these traders.

Given what derivative trading is, and what motivations participants have, let’s look at four exceptional platforms that offer participants unique elements and features for their trading experience.

Pick1: Binance Futures

What it is:  The Binance Futures platform is an integrated piece of the Binance Exchange, which means it has gotten a lot of exposure and attention.  This isn’t necessarily bad or good, but it’s popularity has allowed the platform to gain a large amount of volume and liquidity.

Why it’s interesting:  Binance Futures allows traders to leverage up to 125x, which is much higher than many other platforms.

Pick2:  SynFutures

What it is:  SynFutures is an open and decentralized derivatives platform that allows a variety of assets, including Ethereum native, cross-chain and off-chain real world assets to be synthesized and freely traded.  This means that there are a huge number of asset pairs available to trade, which is great for those focused on long-tail futures. 

Why it’s interesting:  SynFutures has put a lot of thought into their ecosystem, and while it is enticing for traders, it also has generous incentives for liquidity providers and liquidators, removing barriers to entry so that more people can participate in these vital roles.

Pick3: ByBit Exchange

What it is:  ByBit is among the most popular platforms when it comes to derivative trading.  It has many of the features other platforms offer (up to 100x leverage, trading with Ethereum and Bitcoin pairs), but its popularity may stem more from knowing its target market.

Why it’s interesting:  This exchange is very customer focused, and is among the top in terms of minimizing platform issues and downtime.  Also, many traders who want to dip their toe into the futures trading can find a number of one dollar contracts available.  

Pick4: Phemex

What it is:  Phemex is similar to the other exchanges listed here, with an easy to use platform, lower fees, and high leverage (100x).  

Why it’s interesting:  Unlike many of the derivatives platforms, Phemex has an expanded offering of not just futures trading, but spot trading as well.  This allows for a wider portfolio, and is ideal for traders looking to use their futures trading to hedge their spot positions.

Lessons Learned

Based on these picks, what can we learn?  While it would take a much deeper dive into each platform to fully explore the lessons learned, here are three key lessons that can apply not only to these platforms, but all derivative platforms.

Derivatives are more than just trading

Depending on your expertise, the amount of liquidity you have available, and your level of risk acceptance, there is an opportunity to make money not just as a trader.  As mentioned with SynFutures, there are additional incentives for liquidity providers (LPs), as well as those who choose to become a liquidator.  These roles may vary depending on the platform, but it is important to see on a given platform if there are additional roles you may wish to play.

Due Diligence is Key

Do your homework before choosing a platform!  For any trading, but especially with crypto trading, due diligence is an absolute necessity.  Look for news on the platform in question, see what users are saying, dive into any regulatory issues, and research the quality of the smart contract’s audit.  A platform’s reputation is its lifeblood, and it doesn’t take major research to find out if a platform is in regulatory trouble, has been accused of scam wicking its leveraged traders, or something else that is a major red flag.

Trading of Any Kind Carries Risk

Before you trade, make sure you are educated enough in how the platform and potential actions work.  If trading is like a sport, make sure you understand the rules and have practiced enough to get on the field and play.  Most importantly, never risk more than you are willing to lose.  While skill can certainly be involved, those without knowledge are essentially gambling.  You have to decide for yourself the risks you are willing to take, and nothing in the trading industry is certain.

Wrapping Up

Derivatives trading, especially when it comes to crypto futures, is seeing an explosion in growth and popularity.  The number of traders is ballooning, and so is the number of platforms offering great features to their customers.  It’s important to do your homework before joining a given platform, important to know what features are appealing to you, and important to know why you want to jump in.  With proper preparation, the right tools, and a good platform, you will be ready to find some attractive derivatives and get started.