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3 Reasons Why Binance Futures Is The Preferred Hedging Venue For Traders

2020-02-13

Main Takeaway:

  • On Binance Futures, traders enjoy one of the lowest taker fees in the industry.

  • Its matching engine can manage up to 100,000 orders per second with an average latency of 5 milliseconds.

  • The bid-ask spread on the platform has narrowed to an average of 0.3% on an intraday time frame. 

 

Hedging is a risk management strategy employed to neutralize risks in a cryptocurrency portfolio. One of the most popular avenues for risk hedging is the futures market, where traders can go long and short in volatile markets. 

Crypto-derivative exchanges have actively expanded their offering of perpetual futures contracts to allow users to hedge existing positions and better manage their risk. For instance, Binance Futures has grown tremendously to position itself as the go-to venue for traders to hedge risk. 

In the following article, we reveal three reasons why traders prefer Binance Futures.

1. Lowest Taker Fees in the Industry

Generally, trading fees on cryptocurrency exchanges are charged according to the order types that are sent to the market. These fees are also known as ‘taker’ and ‘maker’ fees. 

Taker fees are charged when you place a market order, be it partial or fully filled.  These are more expensive than maker fees because the orders are executed immediately, removing liquidity from the order book. Depending on your trading activity and volume traded, trading fees may vary.  

On Binance Futures, traders enjoy one of the lowest taker fees in the industry. The baseline fee structure charged by Binance Futures are as follows:

Table 1 - Binance Futures taker fee structure

Level

30d Trade Volume (BUSD)

and/or

BNB Balance

USDT

Maker / Taker

USDT Maker/TakerBNB 10% off

BUSD

Maker / Taker

VIP 0

< 15,000,000 BUSD

or

≥ 0 BNB

0.0200%/0.0400%

0.0180%/0.0360%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 1

≥ 15,000,000 BUSD

and

≥ 25 BNB

0.0160%/0.0400%

0.0144%/0.0360%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 2

≥ 50,000,000 BUSD

and

≥ 100 BNB

0.0140%/0.0350%

0.0126%/0.0315%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 3

≥ 100,000,000 BUSD

and

≥ 250 BNB

0.0120%/0.0320%

0.0108%/0.0288%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 4

≥ 600,000,000 BUSD

and

≥ 500 BNB

0.0100%/0.0300%

0.0090%/0.0270%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 5

≥ 1,000,000,000 BUSD

and

≥ 1,000 BNB

0.0080%/0.0270%

0.0072%/0.0243%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 6

≥ 2,500,000,000 BUSD

and

≥ 1,750 BNB

0.0060%/0.0250%

0.0054%/0.0225%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 7

≥ 5,000,000,000 BUSD

and

≥ 3,000 BNB

0.0040%/0.0220%

0.0036%/0.0198%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 8

≥ 12,500,000,000 BUSD

and

≥ 4,500 BNB

0.0020%/0.0200%

0.0018%/0.0180%

-0.0100%/0.0230%

-0.0100%/0.0207%

VIP 9

≥ 25,000,000,000 BUSD

and

≥ 5,500 BNB

0.0000%/0.0170%

0.0000%/0.0153%

-0.0100%/0.0230%

-0.0100%/0.0207%

Source: Binance Futures

Table 2 - Comparison of taker fees across crypto-derivative exchanges

Exchange

Taker Fees

Taker Fees After Discounts

Binance Futures

0.04% - 0.017%

0.036% - 0.0153%

Bitmex

0.075%

0.075%

OKX

0.05% - 0.03%

0.05% - 0.03%

Huobi

0.03%

0.03%

Deribit

0.075% - 0.05%

0.075% - 0.05%

Source: Binance Futures

In comparison to other cryptocurrency-derivative platforms, Binance Futures offers a dynamic fee structure that allows active traders to enjoy low taker fees. Binance Futures extends discounts on taker fees through various marketing campaigns. For instance, Binance Futures offers a 10% discount for traders holding Binance Coin (BNB).

With the combination of low taker fees and tick-by-tick real-time market data that the exchange supports, it allows users to discover price changes very quickly. As a result, traders can capitalize on opportunities to hedge or arbitrage. 

With the tick-by-tick market data, Binance Futures disseminates new data 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.

The following chart shows the distribution of average daily taker volumes by trading activity: 

Category A (CAT A) - accounts that trade less than 10,000 BTC per monthCategory B (CAT B) - accounts that trade between 10,000 to 50,000 BTC per monthCategory C (CAT C) - accounts that trade between 50,000 to 200,000 BTC per monthCategory D (CAT D) - accounts that trade more than 200,000 BTC per month

Chart 1 - Distribution of average daily taker volumes across volume tiers

Source: Binance Futures, Data from November 4th 2019 to February 10th 2020. 

Chart 1 shows the average daily taker volume transacted by the various volume tiers. Notably, the majority of taker volumes were generated by traders from CAT C & D. On Binance Futures, CAT D traders are its largest, contributing 42.9% of the average daily volume.

Due to our dynamic fee structure that rewards traders by trading activity, large traders in CAT D enjoy one of our lowest taker fees in the industry. 

In bear markets, these large traders are likely to protect their portfolios by hedging through the futures market. To analyze the risk hedging patterns of these large traders, we study the relative taker to maker volume against price movements in BTC markets.

Chart 2 - Taker to maker volume ratio for CAT D

Source: Binance Futures, Data from November 4th 2019 to February 10th 2020. 

From Chart 2, we observed that the taker to maker volume ratio spikes to 2x during bearish periods in December 2019. Prior to that, the taker to maker ratio gradually rose as BTC prices fell from $9,000 to $6,000. In contrast, the ratio drops below 1 as BTC prices rallied and broke above $8,000.

The surge in taker volume indicates that large traders were actively hedging their portfolios as price trends shift. Conversely, as markets rallied, traders unhedge their positions.

Transaction cost is a big part of trading cryptocurrency futures, especially if you are an active trader. Understanding the different fee structures among cryptocurrency exchanges can help save a lot of money on trading commissions.

Find out more information about our maker and taker fees here.

2. Stable & Fast Matching Engine

To date, the Binance Futures matching engine is unparalleled – boasting the most stable and fastest matching engine across the industry.

The matching engine is a fundamental building block of any cryptocurrency exchange, it enables users to transact their orders efficiently.

As such, Binance Futures has spent a tremendous amount of effort to build an industry-leading matching engine. This enabled us to offer a stable and seamless trading experience, as the platform reached an all-time high (ATH) daily volume of more than $3.5 billion in notional value.

The Binance Futures matching engine can manage up to 100,000 orders per second with an average latency of 5 milliseconds. In comparison, other matching engines can only handle 100 or fewer orders in the same time frame. 

On various occasions since its inception, Binance Futures’ matching engine has been tested across volatile market conditions and adverse price movements. Thus far, on most occasions, the platform has been unaffected by sudden spikes in volume and operated smoothly with no delays.

As a result, clients have generally been delighted with the stability and performance of its trading platform. Its capabilities on handling extreme market volatility proved to be the 'go-to' platform for cryptocurrency futures for both retail and institutional traders. 

3. Deep liquidity 

Besides its technological advantages, traders also prefer Binance Futures due to the deep liquidity in its perpetual markets which allows traders to transact with ease. Market liquidity is important to traders because it impacts transaction costs and a de-facto measure of market liquidity is the bid-ask spread.

The bid-ask spread is the price difference between the highest bid and the lowest offer. A wide spread indicates price takers would incur a higher transaction cost, while a tight spread means that price takers can transact at lower prices. 

Since the start of the year, Binance Futures has seen more liquidity in its BTCUSDT perpetual markets as open interest and daily volumes grew. Chart 3 shows the bid-ask spread on Binance Futures BTC perpetual markets.

Chart 3 - Daily average bid-ask spread as a percentage 

Source: Skew.com

In terms of market liquidity, Binance Futures has quickly narrowed the gap with Bitmex. Since early January, its bid-ask spread has narrowed by half in just two months,  from 1% to 0.5%. The narrowing spread indicates increasing liquidity on Binance Futures’ perpetual markets. Thus, traders can transact orders efficiently with little to no impact on prices. 

Recently, the bid-ask spread narrowed to an average of 0.3% on an intraday time frame. This narrowing spread is largely attributed to its growing user base open interest and daily volumes. The increase in market participants translates into thicker depths on the order books and tighter spreads. With improved liquidity, users are more likely to stick with the platform as their preferred exchange.

Chart 4 - 5-minute average Bid-Ask spread as a percentage

Source: Skew.com

Binance Futures allows traders to switch between the spot and futures markets easily and quickly. As such, it is easier for traders to conduct sophisticated trading strategies such as risk hedging and arbitrage. In periods of high volatility, these traders will move from spot to futures to capitalize on market movements. Thus, users can trade with optimal efficiency in both markets due to the deep liquidity and ease of moving capital between spot and futures.

The bottom line

Binance Futures has established itself as the go-to venue for risk hedging. It is the preferred trading platform for many traders even in periods of bear markets as taker volumes on large accounts surge. 

The active taker participation also attracts more market makers to the platform, thus further adding liquidity to Binance Futures perpetual markets. With its fast and stable matching engine, Binance Futures offers a seamless trading experience for both retail and institutional traders. 

Read the following support articles for more information about Binance Futures: