The main point:

• At Binance Futures, traders enjoy one of the lowest taker fees.

• The 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 a one-day timeframe.

Hedging is a risk management strategy used to reduce risk in a cryptocurrency portfolio. One of the most popular options for hedging risk is the futures market, where traders can take long and short positions in volatile markets.

Crypto derivatives exchanges have been actively expanding their perpetual futures contract offerings so users can hedge existing positions and better manage risk. For example, Binance Futures has grown rapidly to position itself as a great place for traders to hedge risk.

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

1. Lowest Taker Fees in the Industry

Generally, trading fees on cryptocurrency exchanges are charged based on the type of order sent to the market. These fees are also known as 'taker' and 'maker' fees.

Taker fees are charged when you place a market order, whether it is partially or fully filled. These fees are more expensive than maker fees because orders are executed immediately, thereby removing liquidity from the order book. Trading fees may vary, depending on trading activity and volume traded.

At Binance Futures, traders enjoy one of the lowest taker fees. The basic fee structure charged by Binance Futures is as follows:

Table 1 - Binance Futures taker fee structure

Source: Binance Futures

Table 2 - Comparison of taker fees across crypto derivatives exchanges

Source: Binance Futures

Compared to other cryptocurrency derivatives platforms, Binance Futures offers a dynamic fee structure that allows active traders to enjoy low taker fees. Binance Futures provides taker fee discounts through various marketing campaigns. For example, Binance Futures offers a 10% discount for traders who own BNB.

With the combination of low taker fees and real-time tick-by-tick market data supported by the exchange, users can spot price changes very quickly. As a result, traders can take advantage of opportunities for hedging or arbitrage.

With tick-by-tick market data, Binance Futures disseminates new data after each trade is transacted on the platform, instead of accumulating data every 100 milliseconds. Therefore, traders on Binance Futures can act more quickly to price changes than on other platforms.

The following graph shows the distribution of average daily taker volume based on trading activity:

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

Chart 1 - Average daily taker volume distribution across volume tiers

Source: Binance Futures, Data from November 04, 2019 to February 10, 2020.

Chart 1 shows the average daily taker volume transacted by various volume tiers. Most of the taker volume is generated specifically by traders from CAT C & D. On Binance Futures, CAT D traders are the largest, as they generate 42.9% of the average daily volume.

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

In a bear market, these large traders tend to protect their portfolios by hedging through the futures market. To analyze the risk hedging patterns of these large traders, we studied the volume of takers to makers relative to price movements in the BTC market.

Graph 2 - Taker to maker volume ratio on CAT D

Source: Binance Futures, Data from November 04, 2019 to February 10, 2020.

From Chart 2, we observe that the taker to maker volume ratio jumped up to 2x during the bearish period in December 2019. Previously, the taker to maker ratio rose gradually as the price of BTC fell from $9,000 to $6,000. Instead, the ratio fell below 1 as BTC price strengthened and broke above $8,000.

The spike in taker volume indicates that large traders are actively hedging their portfolios in line with shifting price trends. Conversely, when the market strengthens, traders unwind their positions.

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

Find out more about our maker and taker fees here.

2. Stable & Fast Matching Engine

To date, the Binance Futures matching engine is unrivaled – it has the most stable and fastest matching engine in the world.

The matching engine is a fundamental component for any cryptocurrency exchange, as it allows users to carry out their transactions efficiently.

Therefore, Binance Futures has strived to build the world's leading matching engine. This allows us to offer a stable and smooth trading experience, as the platform reached an all-time high (ATH) daily volume with a notional value of over $3.5 billion.

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

Since its launch, the Binance Futures matching engine has been tested in a variety of volatile market conditions and erratic price movements. So far, on several occasions, the platform has not been affected by sudden volume spikes and has operated smoothly without any delays.

As a result, customers are generally happy with the stability and performance of their trading platform. Its ability to handle extreme market volatility has proven to be the 'go to' platform for cryptocurrency futures for both retail and institutional traders.

3. Deep liquidity

Apart from its technological advantages, traders also prefer Binance Futures because of the depth of liquidity in the perpetual market which allows traders to trade easily. Market liquidity is important for traders because it impacts transaction costs and the de-facto measure of market liquidity, namely the bid-ask spread.

The bid-ask spread is the price difference between the highest bid and the lowest bid. A wide spread indicates that the price taker will bear higher transaction costs, while a narrow spread means that the price taker can transact at a lower price.

Since the start of the year, Binance Futures has seen more liquidity in the BTCUSDT perpetual market as open interest and daily volume increase. Chart 3 shows the bid-ask spread in the BTC Binance Futures perpetual market.

Chart 3 - Daily average bid-ask spread in percentage terms

Source: Skew.com

In terms of market liquidity, Binance Futures is quickly catching up 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 increased liquidity in the Binance Futures perpetual market. That way, traders can carry out transactions more efficiently, with little or no impact on prices.

Recently, the bid-ask spread narrowed to an average of 0.3% over a one-day period. This narrowing of spreads is largely due to growth in the user base's open interest and daily volume. An increase in the number of market participants indicates greater depth in the order book and narrower spreads. With better liquidity, users are more likely to stick with the platform as their exchange of choice.

Chart 4 - 5-minute average Bid-Ask spread in percentage terms

Source: Skew.com

Binance Futures allows traders to switch from spot to futures markets easily and quickly. Thus, it is easier for traders to execute sophisticated trading strategies such as risk hedging and arbitrage. In times of high volatility, these traders will switch from spot to futures to take advantage of market movements. That way, users can trade with optimal efficiency in both markets due to deep liquidity and ease of moving capital between spot and futures.

Conclusion

Binance Futures has positioned itself as a great place to hedge risk. The platform became the go-to choice for many traders, even in bear market periods as taker volume on large accounts soared.

Active participation from takers also attracts more makers to the platform, adding further liquidity to the Binance Futures perpetual market. With a fast and stable matching engine, Binance Futures offers a seamless trading experience for retail and institutional traders.

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

• (Blog) Crypto Futures Trading: Things You Need to Know Before You Get Started.

• (Blog) Crypto Futures Risk and Money Management: 5 Things You Can Do to Better Manage Trading Risk.

• (Support) Binance Futures Product & Features Overview.

• And many more Binance Futures FAQ topics...