As the crypto market expands, so does the demand for sophisticated trading tools. Options trading has long been a staple of traditional finance, and it is now making its way to Bitcoin and other cryptocurrencies.
But . . . what are crypto options?
Crypto options are a form of financial derivatives that give you the right, but not the obligation, to buy or sell the crypto at a specific price – called the strike price – on a specific expiry date. For buying an option, you pay a premium, which is usually cheaper than buying the cryptocurrency outright.
An “option” is a type of derivative contract that gives its purchaser the right – but not the obligation – to buy or sell an underlying asset at a set price at (or, in some cases, before) an expiration date. The right to buy the underlying asset is known as a “call” option while the right to sell is known as a “put” option. Unlike buying bitcoin on a cryptocurrency exchange, options allow you to take a speculative position on the future direction of the market price, meaning you speculate on whether the price will go up or down. We teach a lot of this stuff over at https://elite.readyset.trade/
Basically, in addition to improving the market equilibrium by providing arbitrage opportunities, options trading allows users to hedge against risk. They are cost-effective since you do not have to pay an upfront premium while issuing an options contract, and another hidden benefit is that you do not have to exercise the options contract by compulsion; instead you can choose the option of not exercising the contract — fancy that!
However, since cryptocurrency options are relatively new, the market is not as diverse as the options market for traditional instruments. So, let’s explore what’s out there and take a look at five different exchanges that offer crypto options today.
Right off the bat, you can trade options like BTC, ETH, and BCH on Bit.com. Trading volume-wise, Bit.com is one of the leading exchange platforms in the ETH and BTC options market. Also, Bit.com has a unique feature known as the Unified Margin (UM) system, which allows traders to use one account without limitations. Ok, so what does that mean?
Unified Margin is an upgraded trading and risk management system, adopting one single account solution to optimally trade spot, margin, perpetual, futures, and options. All collateral cryptocurrencies in the unified account are shared as USDT denominated margin to improve capital utilization, thus lowering the risk of being liquidated. Pretty interesting stuff.
The Bit.com trading platform is web-based and accessible from a plethora of web browsers. The platform is big on user experience as one doesn’t need to download any other apps. Therefore, traders are free to access their accounts and trade from any device available within reach.
The platform offers your basic necessary features and tools, with the most important being the technical analysis tools, advanced trade controls, and Tier 2 market data.
Fees on Bit.com are split into seven tiers, with maker fees starting at 0.0200% and taker fees starting at 0.0300%.
Deribit is based in Amsterdam, Netherlands, serving the crypto community with its crypto options products since 2016. Deribit provides European-style options, meaning such options can only be exercised at the time of expiration date. Also, the settlement happens in cash instead of the underlying asset.
Deribit facilitates options trading of Ethereum and Bitcoin on its platform where these purchase fees are applicable 0.04% of underlying or 0.0004 BTC or ETH per option contract.
3. FTX EXCHANGE
FTX Exchange Derivatives is a digital currency futures + options exchange & clearinghouse regulated by the US Commodity Futures Trading Commission (CFTC). What that means is that FTX exchange derivatives are available to both retail and institutional investors. In particular, they offer physical settlement of all contracts, block trading, and algorithmic trading opportunities for institutional investors, while giving direct access for all traders. Since launching in 2017, FTX US Derivatives has cleared over 10 million options and swaps contracts, and recently passed Coinbase as the #2 exchange by BTC volume worldwide.
FTX offers trading in only European-style Bitcoin options, which you cannot exercise early. All options are cash-settled in USD on the expiration date.
The trading fees on the platform are divided into six levels, with maker fees ranging from 0.020 – 0.000%, and taker fees ranging from 0.070 – 0.040%.
Designed for more advanced traders, OKeX (now OKX) is one of the leading options trading platforms in the market. Like Bit.com, OKX offers Unified Margin (aka, Unified Account). OKX currently offers a wide range of assets to trade and its low fees make it one of the most sought-after platforms at the moment.
The highest trading fees payable for low-volume accounts are a 0.15% maker fee and 0.2% taker fee. This drops as low as 0.02% and 0.05% for makers and takers fees, respectively, as you move up the volume charts.
The king of crypto.
Binance is the leading global cryptocurrency trading platform that offers a wide range of crypto assets to trade, all while boasting the most liquid market for all assets in both the spot and the derivatives marketplace.
It allows you to trade crypto options through its Binance Futures platform, which was launched in 2020. You can take leverage of up to 125X to trade cryptocurrency futures and options contracts (but please, think of your kid’s future before doing so).
Binance allows buying and selling of European-style vanilla Bitcoin options, which can only be exercised on the contract expiration date. The option contracts are priced and settled in USDT.
The options trading fee has two parts – the transaction fee and the fee to exercise.
Transaction fee: Index price * Transaction fee rate, i.e., 0.03% of the underlying asset value
Exercise fee: Exercise price * Fee to exercise rate, i.e., 0.015% of the underlying asset value
The fee amount will not exceed 10% of the transaction fee, and in the exercise fee, the fee amount will not exceed 10% of the profit gained by exercising the option.