How Binance Futures differ from other exchanges
The entire crypto-futures industry has become more competitive than ever, as crypto exchanges race to offer the latest products and functionalities to attract users. Today there are a host of platforms to choose from, but not all exchanges are created equal.
Most native cryptocurrency exchanges offer either one of the three following products:
Fiat to crypto trading
These cryptocurrency exchanges either specialize in fiat and spot cryptocurrency products or crypto-derivative products such as futures.
As such, users on these exchanges can only trade on either a spot or derivative trading platform. Thus, users are bound by limited options to utilize their crypto assets and are not able to efficiently hedge positions or arbitrage.
If users wanted to conduct inter-market trading strategies, they are required to maintain multiple accounts from different exchanges that offer the desired products. In these situations, moving funds from one account to another will be costly due to transaction fees. Also, it may not be time-efficient as fund transfers may take time. Hence, traders will not be able to do arbitrage or hedging efficiently on these platforms.
One of the key competitive advantages of Binance is its ability to offer a complete crypto trading ecosystem for its users. Through its futures trading arm - Binance Futures, users have access to both spot and futures markets.
Unlike other exchanges that only offer a limited range of products, traders on Binance have access to over 100 spot markets and over 20 perpetual futures markets that provide trading opportunities for all crypto traders and opportunities for miners to hedge.
The synergy between Spot and Futures markets
Binance offers a complete ecosystem for traders to fully utilize their crypto assets and manage risk in their cryptocurrency portfolio. This was made possible with the integration of both Binance’s spot and futures trading platform. Due to this holistic trading experience, Binance Futures have seen its trading volume and market share increase exponentially since its inception as more traders onboard the platform.
Chart 1 - Weekly trading volumes on Binance Futures
Source: Binance Futures, Data as of 10/2/2020.
Within its first six months of operations, Binance Futures grew its weekly volumes from under $50 million in its first week, to $16 billion as of February 10th, 2020. With its new products, the platform has doubled its weekly volumes since the start of the year.
Two key factors contribute to the successful integration of both platforms.
First, Binance Futures allows traders to move funds from their spot trading accounts to the futures platform almost instantaneously to capitalize on trading opportunities. In addition, traders do not incur transaction fees when switching from spot to futures, unlike on other exchanges, where traders must maintain multiple trading accounts to access the futures market. Further, Binance Futures does not impose any restrictions on the number of times traders can switch between both markets. For instance, users can access the futures markets multiple times a day to capitalize on intraday price movements.
Second, Binance Futures designed its futures contract similar to spot trading to facilitate the transition between both markets. For instance, its perpetual contracts had clear pricing rules. Each contract represents only one unit of its respective base asset, which is similar to spot markets. In addition, Binance Futures perpetual contracts are denominated and settled in USDT, which mirrors the spot market.
These factors played an essential role in integrating platforms as users can transit between platforms with optimal efficiency and have the same trading experience on both platforms.
Arbitrage & Real-time market data
With the easy transition between platforms, traders can capitalize on arbitrage opportunities efficiently and quickly. Therefore, inefficiencies between perpetual contract prices and spot prices are arbitraged away, keeping futures prices in line with spot markets.
Although extreme volatility may cause occasional disparities between the markets, arbitrageurs will seize these opportunities quickly. On other exchanges where arbitraging is more restrictive, futures markets may not reflect the true value of spot markets.
In addition, Binance Futures support users with real-time market data where new data are disseminated after every trade transacted on the platform instead of batching out every 100 milliseconds. Therefore, traders on Binance Futures can react to price changes faster than on other platforms. This further supports arbitraging and hedging activities for its users.
Cross Collateral is a new feature where users can trade futures contracts using crypto assets stored in their Binance exchange wallet as collateral. With this feature, users can use their coins to fund orders directly without the need to convert them as margin.
Traders can borrow tether (USDT) at zero percent interest against their crypto-asset holdings, thereby eliminating the need to transfer coins to a futures wallet. Presently, only BUSD is available as collateral under this function. However, users can expect more tokens to be added in the future.
Cross Collateral is a much-anticipated feature for traders on Binance, allowing more flexibility and more choices of deposits to open futures positions. With the latest feature, traders have greater access to its futures platform, thus, expanding Binance’s ecosystem further.
Binance Futures’ Growing Altcoin Portfolio
Since the start of the year, Binance Futures has actively expanded its offering of perpetual futures contracts to allow users to hedge existing positions and better manage their risk. The platform currently offers 21 perpetual futures contracts as of 14 February, with VETUSDT being its latest addition.
With the growing portfolio of futures contracts, Binance Futures has positioned itself as the preferred hedging venue for crypto traders. This is shown in the growth of open interest and volume on its altcoin perpetual markets over the last two months.
Chart 2 - Daily volume of BTCUSDT vs. Altcoin perpetual contracts
Source: Binance Futures, Data as of 14/2/2020.
In less than two months into 2020, trading volume on Altcoin perpetual markets has narrowed the gap with BTCUSDT. Prior to this, BTCUSDT contracts dominated trading volumes with more than 70% of total volume on Binance Futures. With the introduction of new altcoin perpetual contracts, users have better access to participate in the recent bullish momentum in altcoin markets.
Chart 3 - Open interest in Altcoin perpetual contracts
Source: Binance Futures, Data as of 14/2/2020.
Collectively, open interest across altcoin perpetual markets has grown from under USDT 20 million on January 1st to USDT 191 million - almost 10 times larger in less than two months. Year-to-date, open interest in Altcoin perpetual contracts has expanded rapidly from 10% of total open interest to 40% today.
Binance has created a complete crypto trading ecosystem by integrating spot and futures platforms to provide a seamless and holistic trading experience for its users. The strong synergy between both spot and futures platforms was made possible by two key features:
Ease of transferring funds between platforms
Intuitive futures contract design
Furthermore, Binance Futures continues to expand its ecosystem with new features such as Cross Collateral - an innovative function that allows users to collateralize their crypto holdings to fund their futures positions.
Its growing ecosystem is evidently a key competitive advantage of Binance Futures, as shown by its increasing open interest and trading volume in Altcoin perpetual markets. Binance Futures will continue to develop innovative functionalities to improve accessibility to its futures markets as well as further develop its ecosystem.