update 19 August 2021

FTX Crypto Derivatives Exchange – A Guide for New Users

FTX is a robust cryptocurrency derivatives exchange that leverages a low fee structure and new technologies to provide experienced investors with a robust trading experience. The platform is known for its enterprise-level trading functions and its commitment to security. As such, FTX is part of the growing trend of institutional investor-focused platforms.

Cryptocurrency Derivatives Exchange

The main difference between a derivatives exchange and a regular crypto exchange is that derivatives exchange users don’t directly trade cryptocurrencies. Derivatives are financial tools that derive value from the underlying product, in this case, cryptocurrencies. Consequently, the FTX exchange trades contracts based on the underlying asset instead of the asset themselves.

Benefits of FTX

There are some serious benefits to derivatives-based exchanges that normal exchanges can’t provide. Primarily, derivatives give investors the ability to short digital assets. FTX’s slogan “by traders, for traders” encapsulates the firm’s dedication to users. 

  • Easy to Navigate

Despite its advanced trading functionalities, FTX is built intuitive enough for first-time users to find their way around the platform with ease. Additionally, the structure of the exchange provides for more investor flexibility. 

For example, FTX can offer a wider range of trading than other cryptocurrency exchanges. The platform also allows traders to speculate on the future value of various digital assets and trade their corresponding futures.

  • Security

FTX’s developers took extra care to provide users with top-notch security measures. The firm’s stringent security procedures and robust insurance and fund policy make it ideal for large investors seeking extra protections not found on other platforms. To date, FTX has never been hacked, albeit the exchange is only a few years old.

  • Service Large Investors

Professional trading firms require that exchanges meet their stringent criteria before their participation. FTX checks all the boxes in this category. The platform is registered with regulators and built on the latest industry standards. 

  • Shorting Options

Shorting is an advanced investment strategy that allows investors to profit off of market downturns. Shorting is extremely popular in the traditional markets, and the ability to do so in the crypto sphere has long been a desire of participants. 

There are multiple ways to short an investment, but in most instances, an investor will take out a credit line to purchase large amounts of the asset they intend to short. These purchases will occur right before the market value of the asset drops. The investor will then sell these holding at a premium. After the market downturn, the investor repurchases the asset at a lower price, repays the loan, and keeps the difference. 

  • Low Fees

It’s all about the fees when discussing professional traders. Luckily, FTX has a very reasonable fee rate based on a tiered structure according to your trading volume. Amazingly, the platform currently offers taker fees of 0.07% for the lowest trading tier and 0.00% maker fees for the rest of 2020. 

  • Innovation

It would not be easy to find a more innovative exchange than FTX at this time. The platform introduces a variety of industry-firsts. These products and services include derivatives, options, volatility products, and leveraged tokens. When you combine these features with the platform’s large number of trading products, including perpetual futures, crypto indexes, and volatility contracts, it’s easy to see why investors favor this platform.

What Problems Does FTX Attempt to Fix?

FTX’s strategy enables the platform to eliminate a variety of concerns encountered on other platforms. Users of FTX enjoy more flexibility and a perfect security track record. Additionally, the platform’s fee structure is one of the lowest in the market. Daily investors benefit greatly from these low transaction costs.

  • Complicated Exchange Processes

FTX simplifies some of the more complicated trading processes. For example, leveraged traders who are investments go sour are subject to liquidation. However, FTX introduces BULL and BEAR tokens to the equation to prevent these losses. These tokens automatically manage exposure by rebalancing daily to maintain all target positions.

  • Lack of Transparency

The crypto exchange sector continues to expand rapidly. Unfortunately, not all of these new platforms share the same commitment to security. FTX’s regulated approach and transparent strategy provide investors with new levels of confidence in the market.

How Does FTX Work?

Using FTX is simple and fun. It only takes a second to buy and sell BTC, ETH, USDT, BNB futures, and index futures on the network. As a regulated exchange, you will need to complete a full KYC verification before you can start trading. Here are some of the features that make FTX a smart choice for experienced investors:

Perpetual Futures

A future is a legal agreement to buy or sell an asset at a predetermined price. Futures are a powerful investment tool that is popular among traditional investors. Notably, it took years for exchanges to get BTC futures approved by regulators.

Options

Another version of futures is options. These financial instruments are very similar to futures but with one main difference. They give the holder the right, but not the obligation to sell at a certain date.

MOVE

FTX introduces a MOVE protocol to the equation. This is the feature that ensures that contracts settle in the absolute change in the price of a coin over time. This feature also includes the MOVE indices. Here, investors can track the volatility of cryptocurrencies and leveraged tokens at just a glance.

Spot

There is also spot trading of digital assets. The platform bases these trades on the market matched orders. Spot trading is a common feature in the market. 

Leveraged Tokens

FTX introduces leveraged tokens to the equation. These tokens represent leveraged positions in the market. There are creation and redemption fees of 0.10% and daily management fees of 0.03% for these tokens.

Notably, these ERC-20 tokens provide leveraged exposure to cryptocurrency markets without making investors directly manage a leveraged position. The platform offers four leveraged tokens at this time:

  • BULL (+3x);
  • BEAR (-3x);
  • HEDGE (-1x); and
  • HALF (+0.5x)

Index Futures

FTX was the first exchange to provide Index Futures. Indexes are investments made up of a group of smaller investments. They are usually more stable as they derive value from a basket of assets. FTX introduces these index futures to the public:

  • EXCH – a future on an index of major exchange tokens
  • MID – an index future on mid-cap coins
  • ALT: a future on an index of major altcoins
  • DRGN: a future on an index of major Chinese coins
  • SHIT: an index future on low-cap coins

Leverage

FTX goes above and beyond in terms of providing leveraged trading opportunities to the market. Not to be outdone by the competition, FTX offers an impressive 101x max leverage to users. Importantly, leveraged trades expose you to higher ROIs and risk exposure. Only experienced traders should utilize this strategy. 

DeFi Token Support

FTX is at the forefront of the DeFi revolution. The platform currently supports multiple DeFi tokens. Additionally, users can trade the DeFi Index Perpetual Futures on the platform. This unique financial instrument is one of the main draws to FTX.

FTT Token

The FTT token is the premier utility token of the FTX ecosystem. There are some serious advantages gained through the use of FTT. You can use FTT as collateral for credit on the platform. You also pay fees with this token. Interestingly, your funding fee is not taken by the exchange; instead, it’s sent to the holders of the opposing contract. This system is known as positive funding. In a positive funding scenario, long positions pay short holders via fees.

FTT tokens are set to remain valuable for the foreseeable future thanks to the platform’s deflationary tactics. FTX will buy and burn FTT equal to 33% of all fees generated on FTX markets. Token burns are a powerful tool used by blockchain platforms to reduce the total circulating supply of a digital asset. In turn, this strengthens the value of the remaining token in the market. 

History of FTX

FTX Trading Limited launched in 2019 to much fanfare. The platform saw immediate success. This success can largely be attributed to its experienced development team, including various crypto stars such as Sam Bankman-Fried (CEO) and Gary Wang (CTO). Both of these gentlemen are well known for their work with Alameda Research. FTX’s headquarters is in Hong Kong. However, FTX Trading Limited is incorporated in Antigua and Barbuda.

On 26th August 2020, FTX announced the acquisition of a Blockfolio. The company acquired the popular trading charts network for $150 million. Currently, the two teams are working together on a Blockfolio-branded trading product to bring to the market. 

FTX – The Right Combination of Features and Protections

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FTX researchers deserve credit for their hard work. The platform is a true pioneer in the market. There is little doubt that there will be a line of copy cat exchanges attempting to duplicate FTX’s new products and services in the coming weeks. For now, FTX provides investors with unmatched flexibility.

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