Deribit, the bitcoin futures and options exchange, today launched a new, improved and much faster version of its popular Perpetual Swap. The company is launching the product in Beta, but it is fully tradable. The team at Derbit expects to come out of Beta and add additional features quite soon.
The Perpetual is responsible for between 40 and 50 percent of all global trading in bitcoin. It allows traders to take positions without any bitcoin actually changing hands. It features low fees and traders can take on very high levels of leverage.
A Perpetual is a complex product for an exchange to implement. Up till now the only exchange offering it was BitMEX. Thanks to the Perpetual, this exchange is currently the dominant one globally.
Deribit now offers a version that has some firm advantages:
Blazing fast execution
Deribit already operates one of the most advanced platforms in the market. Over the last half year, Deribit’s developers worked flat out to make sure that our order execution speed will remain blazing fast even under extremely high volumes. This means Deribit can handle thousands of order requests per second. Even then, order delays will be at most a couple of milliseconds per order.
The Deribit Perpetual executes orders 20x to 40x faster than the conventional Perpetual on average, and in fast-moving markets, the difference can be significantly larger. Fast execution can have a positive effect on profits, especially in the case of large price moves. It also provides Deribit users with the comfort that there are no preferred parties that are allowed to front run the market.
In order to keep its price close to the bitcoin price, a Perpetual uses so-called ‘funding payments’ that occur between the buyers and sellers of the contract. The conventional Perpetual transfers the funding payment every 8 hours and this can cause bumps in the contract price around the moment of payment. The Deribit Perpetual makes tiny payments on a microsecond basis. This completely avoids price disturbances and will serve to keep the Perpetual price very close to the Bitcoin level.
Perpetuals and related products like futures enable traders to take large ‘leveraged’ positions on the basis of only a very limited amount of capital. The capital backing a leveraged trade is called ‘margin’. At the moment Deribit offers 50x leverage. Thus, with 1 bitcoin of margin, users can take a 50 bitcoin position. If the price moves against a leveraged position, eventually the exchange has to close out (liquidate) the position in the market to ensure there is always enough capital to cover the potential losses of the trade.
A number of high profile liquidation related incidents at other exchanges have resulted in large losses for traders. Deribit has designed a fairer liquidation mechanism that executes liquidations on an incremental basis while continuously trying to bring the position back into compliance. If a position is eventually closed out Deribit customers retain any capital that is left over instead of automatically losing their entire margin.
In most cases, Deribit is able to stop the entire position from being liquidated or return some margin to the customer. Deribit has never had to ‘socialize’ liquidation losses by recouping them from other traders.
Another important advantage of Deribit over other exchanges is that they allow unrealized profits to be used as capital. This means that if a position is profitable, the unrealized profits can be used immediately as capital to open new positions, without waiting for a settlement.