This week, the world’s largest exchange by trading volume, Binance, launched margin trading. In doing so, it made the elite group of exchanges that offer crypto derivatives less exclusive than it once was. Binance, Kucoin, and Bitmax have all rolled out margin products this year, in a bid to give market leaders Bitmex and Deribit a run for their money.
Binance Leverages Margin to Woo the Bitmex Brigade
To celebrate its second birthday, Binance has been rolling out a flurry of new products and announcements this week. Chairman CZ has been even more active on Twitter than usual, providing teasers of what’s to come and revealing events such as the introduction of fiat-crypto pairs for Binance Singapore. Today, the exchange launched its margin trading platform, allowing it to go head to head with Bitmex, the home of 100x leverage on BTC and other leading crypto assets.
“With margin trading being one of the most requested services from our community, this is a testament to the large market demand from retail and institutional traders alike and its promising possibilities in the future,” said Binance co-founder Yi He. CZ echoed this sentiment, speaking of it as being “another step in providing an inclusive cryptocurrency trading platform catering to the needs of both advanced institutional traders and retail traders under the same roof.”
Binance launched as a retail-focused cryptocurrency exchange, but as the broader industry narrative has shifted towards onboarding institutional clients, companies have adjusted their strategy accordingly. Bitmex, registered in the Seychelles, requires no KYC and is thus unsuited to institutional clients, who require greater regulatory and custodial assurances. Binance is hoping to not only capture a share of the retail market for margin trading, but to establish itself as a leading institutional exchange for derivatives. It will face stiff competition on both fronts, however, with the retail market having become particularly crowded.
Everyone’s on Margin
Kucoin beat Binance to the punch for margin trading by three days, launching its Kumex platform on July 8. It is still in public beta, however, and offers leveraged perpetual BTC contracts with up to 20x leverage. Its XBT perpetual contract takes a volume-weighted average price for BTC from six exchanges. During the three-week beta launch period, demo BTC is available for trading to allow users to familiarize themselves with the platform. To stimulate trading activity during this period, 10,000 KCS – Kucoin’s native token – will be given away. Thereafter, 50% of the net revenue from Kumex will be distributed to KCS token holders.
Okex is also trying to gain a share of the lucrative margin market. In February, it expanded its margin products by adding four new pairs, allowing traders to long or short BSV, QTUM, DASH, and NEO against BTC or USDT with up to 3x leverage, with BCH, ETC, ETH, and XRP already supported. The exchange also offers a BTC perpetual swap with up to 100x leverage.
Other exchanges that offer margin trading include Etoro, Prime XBT, and Kraken. They’ll soon be joined by forthcoming BTC and ETH futures exchange Digitex, which promises to deliver up to 100x leverage and onchain settlement.
The High Cost of Margin Trading
Margin trading on Binance was already available in beta, but is now fully rolled out, with a dedicated margin wallet that supports BTC, ETH, XRP, BNB, TRX, and USDT. Traders simply transfer assets from their main account to their margin account to get started. The exchange has been at pains to emphasize the need for careful risk management when trading with leverage, however, since sudden and extreme price swings, which are synonymous with crypto assets, can result in liquidation.
XBTUSD perp swap open interest is now in the 3 comma club. Welcome to the 2019 bull fucking market YeeHaw! pic.twitter.com/rLhKRIn83d
— Arthur Hayes (@CryptoHayes) June 26, 2019
Bitmex CEO Arthur Hayes is known for his unsympathetic attitude, which is all part of the experience when you’re trading on one of the world’s most unforgiving exchanges. “Man of the people” CZ is obliged to cut a more compassionate figure, however, and won’t be caught gloating at rekt traders. In an AMA on July 11, CZ revealed that 10,000 traders signed up for Binance margin in the first day and $15M in trades was placed.
Want to try your hand at margin trading or even just see what it's all about?
— Binance (@binance) July 12, 2019
With margin trading now just a couple of clicks away, a wave of Binance users will be exposed to its high octane thrills and perils in the weeks to come. The odds of institutional investors onboarding in their droves seems remote at this time though. In addition to its huge user base, Binance boasts a more stable trading engine than Bitmex, which is prone to crashing at peak times, and Binance’s user-friendly interface is more attractive to beginners. But with $3.6 billion of derivatives traded on Bitmex in the last 24 hours, it remains the runaway market leader by some distance. Binance, in comparison, reported a volume of $1.6 billion in the same period. Binance has already beaten Coinbase and Bitstamp to become the world’s leading cryptocurrency exchange. Bitmex is now next on its hit list, as it seeks to claim the derivatives crown.
What are your thoughts on Binance introducing margin trading? Let us know in the comments section below.
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