Deribit- the new playground of crypto margin traders

Trading of cryptocurrency is slowly gaining traction as people believe these tokens and coins are
something that is here to stay and as they grow they would make significant money for them as well.
Having heard stories of people ’s making fortunes by investing early in equities is keeping people
interested in crypto trading. Hence as the crypto industry is evolving a lot of products and services
that were available for equities and other financial products are slowly and steadily moving towards
crypto trading as well. One such prominent service happens to be margin or leverage trading which
is slowly picking up among crypto traders.

Overview of Margin Trading

Margin trading or leverage trading is a risky game that has been played in financial markets by
mature traders for quite some time now. It is a strategy where the trader uses borrowed funds from
his broker and trade financial assets which eventually becomes the collateral for borrowed fund the
broker. As this trading strategy is highly risky, it is conducted only through a specialized account
known as the margin trading which is different from the cash account used by all the investors. This
separate account also allows investors to short sell the stocks, while buying can happen the same
way either in cash or margin account. Margin trading is only possible as there are lenders available
who to earn interest, provide leverage to traders so that they can invest or trade in larger amounts
compared to what they have in hand.

Margin Trading comes to cryptos

As mentioned earlier, a lot of exchanges now allow margin trading for cryptocurrencies. But as the
asset under consideration here is a little different, the rules of the margin trading also differ a bit
when it comes to cryptos

Peer to Peer lending for margin trading: In equities, the lenders that provide leverage for margin are
brokers. But in cryptocurrencies, this leverage is provided by the exchange and in some cases like
Poloniex, it provides other users too to provide loans to traders for margin trading.

Close watch and effective risk management: Since crypto coins are fairly volatile margin traders,
need to keep a close watch and have an effective risk management mechanism to avoid huge losses.
As crypto markets turn their trend within minutes and have extreme fluctuations, a slight shift of
focus could lead to huge losses for the trader. Since this losses are over borrowed money there are
chances that the trader may lose his margin money as well and end up paying huge interest on
borrowed money.

Enter Deribit

Deribit is one of the prominent Bitcoin’s derivate exchange which was founded by John Jansen who
himself was an early cryptocurrency investor with an experience in options trading that he gained at
the Amsterdam Options Exchange. In 2014, after trading cryptocurrency on a variety of exchanges
around the globe, Jansen formed a vision to start a cryptocurrency exchange where he could
integrate derivatives products for cryptos including futures and options and which would function in
a secure and high-performance environment. John slowly started building his team and it took him
two years to get the exchange live which is called as Deribit.

Launched amidst growing interest for cryptocurrencies, Deribit soon gained traction is it one of the
very few exchanges than to offer derivative trading cryptocurrencies. It was the first and only
platform in the world that offered plain "vanilla" European options as well as bitcoin futures with
margin. Till date, it remains the fastest and most technically advanced bitcoin exchange as its
technology is in a position to handle a very large number of requests with ultra-low latency.

Deribit Perpetual: Lets trade cryptos with 100x margin

While the exchange continued to stand out as a prominent crypto exchange, the exchange, in mid-
August, launched the beta version of its prominent virtual swap known as the Deribit Perpetual. This
version of Deribit Perpetual was much improved and was blazing fast. A perpetual is a complex
product to implement on an exchange and up till the Deribit launch, only Bitmex exchange was
offering it. Still, this product garnered between 40% to 50 percent of all the global trading in bitcoin.
This product is so popular because it allows traders to open and built up positions without any actual
transfer of bitcoin. This is coupled with low fees and exponential leverage making it a trader’s
darling.

Deribit Perpetual also stood out against the traditional perpetual because it came with improved
features like blazing fast executions-almost 20x to 40x faster, Continues pricing and Fair Liquidations

Deribit Perpetual became an instant success raking up the volume of the exchange by over 50%
within 2 weeks of the launch. Understanding the need, contemplating the response and to mitigate
the competition from Bitmex, Deribit offered this product to traders with 100x leverage- which now
allowed traders to take an exposure of USD 100 against every used it had in its account, after
subtracting the trading fees.

Where Deribit betters BitMex

While Deribit and Bitmex stand neck to neck while serving the derivative and margin trading
segment of crypt traders, there are certain ints where Deribit clearly stands out

- Differing Perpetual Swaps- While both exchanges provide the user with a perpetual swap
product BitMEX’s perpetual swaps work during an eight hour period. This means the
exchange calculates the prices every 8 hours thus a carries out a mark to market payout in
between the traders that holder long and short positions. On the same product, Deribit
makes the swap work differently. Instead of an 8-hour gap, Deribit pays out continuously to
active positions depending on the discount or premium these positions have against the
spot price. The way Deribit does it definitely better a beneficial than the 8- hour gap of
Bitmex as this allows a smoother adjustment mechanism.
- Insurance: Deribit operates a fund with 25 bitcoins to provide protection against position
bankruptcy. The is Deribit’s way of avoiding socialized losses. This is definitely a better way
of handling position bankruptcies that Bitmex’s auto-deleveraging.
- Wider Options: While both exchanges offer options trading, Deribit has and offers a wider
range of option contracts to traders than BitMEX. The contracts that Deribit offers have
strike prices ranging from USD 2500 to USD 45000 with a longer expiration that which goes
as far as 29th March.
- Order Execution and Transaction Speed: Deribit technology makes it one of the fastest
when it comes order execution. What Deribit takes a few seconds to execute an order
Bitmex takes it at least 20x to 40x longer time compared to Deribit.A lot of it because of
Bitmex’s popularity and transaction load. Still, Deribit’s system and speed stands out as the
team has already the tested 1,000 orders per trading block per second while their system
capacity is to handle 5000 orders per second. This is far superior to Bitmex which only had a
capacity of 500 orders per second before it got overloaded.
What traders say of Deribit

- Crypto Piglet (medium channel)- who calls himself a crypto enthusiast and a trader says
Deribit is a lot more reliable with their platform from a user experience point of view.He also
terms Deribit a BitMex Killer.
- Another trader who has a twitter handle “Thinking USD”also seems to be a big fan of Deribit
as in one of his tweets on October 7 he said “I urge everyone to move to Deribit ASAP. It
does not have overload, Offers the exact same products as BitMEX with options and has
actual transparency.