Binance sizes up BitMEX with Futures plans

Speaking at the Asia Blockchain Summit in Taipei last week, Binance CEO Changpeng Zhao said Binance Futures will offer Bitcoin/Tether pairs at up to 20x leverage. The futures product is a new Binance feature, joining the recently introduced margin trading functionality that offers 3x leverage.

While no timeline was given for the futures launch, Zhao showed off a working interface for the new platform, suggesting it’s not far off. Binance is known as a fast-moving company, its teams are constantly developing and releasing new products to serve the exchange’s large trading base.

Margin trading

The two products are different, however, at a high level, margin and futures trading allow traders to take short or long positions, and borrow funds from the exchange to bet with larger position sizes.

"For example, you have 10 bitcoins, you can borrow close to another 10 bitcoins and start trading," explained CZ in a recent AMA. "The maximum margin that’s offered right now is 3x. So it’s basically between 1x to 3x. We’re relatively conservative right now. We just want to make sure that everybody gets used to this feature before we increase their margin leverage."

As leverage rises, the liquidation level gets closer to the current price, making it more likely that the trader will lose their funds.

Lending on margin can also be risky for exchanges, however. This is one reason why Binance’s current offering, which allows traders to bet up to three times the amount of bitcoin held, is only operational on five of the exchange’s most liquid assets; Bitcoin, XRP, Binance Coin, TRON, and Ethereum.

Futures contracts, which are derivatives of bitcoin, typically offer higher potential leverage — like BitMEX’s Perpetual Swaps that allow traders to maximize returns (and losses) by trading with up to 100x the bitcoin they actually have.

Binance 2.0

The addition of leveraged trading capabilities is just the latest stage of an expansion that has seen the ambitious Binance reach into every corner of the ecosystem. This includes the addition of a decentralized exchange, and the incorporation of various regulated local crypto-to-fiat exchanges.

Binance is known for having an uncanny ability to stay a step ahead of regulators. After announcing that it would soon begin blocking services to US citizens on its existing platform, rather than risk losing market share, Binance will instead create a fully compliant division based in the US to serve US-based traders.

Now, the addition of margin and futures trading, both part of the road map in the original Binance whitepaper, marks the transition to what the exchange calls "Binance 2.0."

Along an improving interface and matching engine, the milestone moves the platform closer to its goal of providing a seamless one-stop trading toolbox that allows spot, margin and futures traders to benefit from a shared liquidity pool. "Futures is a different type of trading that serves a different type of user," said CZ at the Taipei Summit. "We have that combination of spot, margin, and futures on the same platform, accessing the same pool of funds, so you don’t have to trade on Bitmex and then move your money back to Binance for spot trading. We think that by providing a more complete suite of trading products we can actually improve liquidity for this market."

Derivatives boom

As the new functionality rolls out, Binance is hitting new trading records. The amount of volume traded on the exchange has mirrored bitcoin’s recent parabolic rise, shooting up to new highs on 27th June with over $5.5 billion changing hands in a single day as bitcoin flirted with $14k.

This momentum is impressive, but if Binance is to maintain its lead as the largest exchange by volume, it will have to fend off several competitors that are also releasing their own derivatives platforms amidst growing demand.

Singapore exchange KuCoin last week announced its own derivatives platform, KuMEX. This will compete with Huobi’s derivatives market, which launched last November and hit $195 million in trading volume on its first day of operations.

Seasoned margin platforms are also boosting operations in response to the competition. In a whitepaper published in May, Bitfinex announced that its current 3.3x margin will soon be complemented by a 100x leverage derivatives market.

Meanwhile, the pioneering derivatives platform BitMEX, which recently blitzed its volume record with $60 billion traded in a single day, is taking a different approach. Not content with dominating the futures market, the exchange is now exploring new products for the digital economy. Bitmex CEO Arthur Hayes told Bloomberg last that the exchange would soon be launching Bitcoin Zero Coupon Bonds that allow investors to "earn a yield on bitcoin by investing and loaning bitcoin to some of the most stable companies in the space."