The past couple of days in the crypto news have been focused on either the bitcoin price hike or Facebook’s Libra but Binance CEO, Changpeng Zhao, sure knows how to keep the platform in limelight as he unveiled plans for launching a futures trading platform that would initially support a Bitcoin-Tether pair (BTC/USDT), with up to 20 times leverage!
— Binance (@binance) July 2, 2019
Changpeng Zhao, more popularly known as CZ in the crypto community, announced that the project, dubbed ‘Binance Futures’, is in the pipeline that will be dealing with futures contracts. CZ revealed the forthcoming platform during his keynote speech at the Asia Blockchain Summit in Taipei.
The aim of the summit was to gather professionals from leading industry startups, investment firms, financial services giants, global brands, academic institutions, international media and policy groups, under one roof in order to thoroughly discuss the evolving real-world applications of blockchain technology.
What is a Futures Contract?
A futures contract can be categorized as a derivative product, meaning its value is derived from and is dependent on the value of an underlying asset. And as the name suggests, it is an agreement to buy or sell a commodity, currency or other instrument at a predetermined price at a specified time in the future. When dealing with futures contracts, it is imperative for traders to have basic knowledge about some of the key components of the futures market, which include the following:
The trader should know how much is one contract worth. This information can usually be found under the Contract Specifications for each instrument.
Initial and Maintenance Margin
These are the key margin levels that determine how much leverage one can trade with and at what point liquidation occurs.
It is imperative for traders to understand how and when the futures contract expires, or settles. The settlement time varies from in different instruments, and one should skim through the specifications of the contract thoroughly in order to grasp the individual settlement procedure.
This refers to the amount or percentage of the premium or discount the futures contract trades at as compared to the underlying spot price, which is the current price in the marketplace at which a given asset can be bought or sold. Basis is a necessary component of futures contract because since it expires in the future, there is either a positive or negative time value element linked to that expiration uncertainty.
Binance, which is famous for being the biggest cryptocurrency exchange in the world in terms of trading volume, isn’t the first exchange offer futures contract. Another crypto exchange, BitMex, considered as the largest derivatives exchange by volume, already offers this feature.
In fact BitMex could potentially serve quite some competition for Binance in this particular area because, according to reports, BitMex surpassed $1 trillion in annual trading volume which is impressive considering the how bitcoin suffered at bear-market lows for most of the 365 trading days, last year.
— Arthur Hayes (@CryptoHayes) June 29, 2019
BitMex had a field day during the recent bitcoin price rally. While some of the major cryptocurrency exchanges suffered an outage, BitMex boasted a record day as bitcoin’s price shot to almost $14,000. Open interest for perpetual swaps hit $1 billion while total volumes hit $16 billion across the board.
Moreover, the exchange is popular among the crypto community for its high-leverage margin trading. Users can execute 100x leveraged trades on bitcoin futures and perpetual swaps via BitMex.
For now, a set date for the release of the platform hasn’t been revealed but a simulation test version is expected within a few weeks from now. It seems that Binance is set on expanding its territory with Binance Futures. According to cryptocurrency trader and analyst Luke Martin, Binance appears to be entering every major segment.
Binance Futures is the latest addition to the platform’s services as the crypto exchange just confirmed only last month that it’ll be rolling out margin trading. A feature that is already supported by several major exchanges including Bitfinex and Huobi.
It’s pretty evident that Binance is gearing up to give a tough competition to exchanges everywhere as it broadens its spectrum of crypto related services. And considering its position as one of the world’s most popular crypto-to-crypto exchange by volume, it is highly possible that the exchange can usurp the position of other exchanges, including BitMex.