In 2017, the ICO boom raised an estimated $5.6 billion. The promise of easy money and 100x returns drew retail traders in droves to altcoin exchanges. The largest of these exchanges, Binance, was founded in 2017 and a year later booked over $1 billion in profit. As altcoin prices—and trading volumes—have crashed, retail interest has shifted from "altcoin casinoes" to futures and derivatives exchanges.
These exchanges, which allow traders to speculate on cryptocurrency with margin, have grown explosively over the past year. Larry Cermak, Director of Research at The Block, writes that volume on BitMEX’s popular Bitcoin perpetual swaps product hit an all-time high in 2019:
10/ The monthly volume of BitMEX’s flagship Bitcoin perpetual swap reached an all-time high in 2019. In both June and July, monthly volume surpassed $140 billion, which is about 33% higher than the previous high of $105.8 billion recorded in March 2018. pic.twitter.com/8k8dYBqmYn— Larry Cermak (@lawmaster) January 16, 2020
It’s estimated that there was a notional $19.6 billion in liquidations, or margin calls, on BitMEX alone in 2019. A rough estimate assuming 25x leverage puts that at $800 million in real value.
Through the course of the year, ~$20 billion got liquidated on @BitMEXdotcom, a ~20% increase since last year.— Unfolded (@cryptounfolded) December 29, 2019
Assuming an average leverage of 25x:
~$800 million of user funds got liquidation on BitMEX during 2019.
data: https://t.co/sIhSHD2UPJ | https://t.co/KBWo3n0CTo pic.twitter.com/OVJ1z4W2g2
For retail traders, the primary purpose of using a futures exchange is to speculate on the price of Bitcoin. Futures exchanges allow traders to do this on margin and leverage their collateral to place bigger bets but take larger corresponding losses as well.
Beyond speculation, there are a number of benefits to futures trading. Trading on margin helps offset counterparty risk— say, in case an exchange shuts down. You could keep 90% of your funds on a cold wallet and 10% on a futures exchange and, using leverage, trade with your entire stack. Futures exchanges also allow traders to take short positions and then profit when the price of BTC goes down—or hedge spot holdings.
For retail traders, there are a number of things to pay attention to when selecting a Bitcoin futures exchange:
- Fees and slippage: For traders, making money is the most important objective, and fees and slippage can eat into profits heavily. Most derivatives exchanges in crypto have similar fees schedules, but trades can also suffer from hidden fees in the form of slippage, where the price that a trade executes at is below the mark price. Perpetual swap contracts also typically include funding fees, which are variable across exchanges.
- Reliability: Derivatives exchanges can suffer from technical difficulties, overloads, and flash crashes. For traders, these malfunctions can lead to steep losses, which is why it’s important to pick an exchange that has a high uptime and is technically sound.
- Currency pairs and trading products: Most bitcoin derivatives exchanges have expanded to offering additional trading pairs to Bitcoin/USD. Traders can also find a number of products beyond futures, including options, volatility contracts, and more.
- KYC/AML: Exchanges have different Know Your Customer (KYC) policies. For non-KYC accounts, some exchanges limit withdrawals. This can be a major concern for many retail traders who either wish to remain anonymous or who reside in a jurisdiction like the United States, which prohibits derivatives trading.
|Exchange||Mandatory KYC||Non-KYC Withdrawal Limits||Futures||Options||Mobile App||Leverage||Maker Fees||Taker Fees||Currency Pairs|
|Binance Futures||No||2 BTC / day||No||No||Yes||125x on BTC/USDT, 75x on other pairs||0.02%||0.04%||BTC/USDT, ETH/USDT, BCH/USDT, XRP/USDT, EOS/USDT, LTC/USDT, TRX/USDT, ETC/USDT, LINK/USDT, XLM/USDT|
|BitMEX||No||None||Yes||No||No||100x on BTC/USD, 50x on ETH/USD, 20-33x on ALT/BTC pairs.||-0.025||0.075||BTC/USD, ETH/USD, BCH/BTC, EOS/BTC, ETH/BTC, LTC/BTC, TRX/BTC, XRP/BTC|
|Bybit||No||None||No||No||Yes||100x on BTC/USD, 50x on ETHUSD, EOSUSD, XRPUSD||-0.025||0.075||BTC/USD, ETH/USD, EOS/USD, XRP/USD|
|Deribit||Yes||1 BTC/Day||Yes||Yes||Yes||100x on BTC, 50x on ETH/USD||-0.025||0.075||BTC/USD, ETH/USD|
|FTX||No||$2,000/Day||Yes||Yes||Yes||101x across assets||0.02%||0.07%||BTC/USD and ETH/USD, 20+ Altcoin USD pairs, Altcoin Indexes, and more|
For the purpose of this article, we researched and traded across numerous different bitcoin futures exchanges. To tailor this guide to retail traders, we focused on exchanges without strict KYC and withdrawal requirements. We also excluded institutional futures exchanges such as the CME from our analysis, as the contract sizes are prohibitively large for retail traders.
Below, we'll dive into our top picks.
Table of contents:
- 👩🌾 Best for retail day traders: Bybit
- 🤹♀️ Best for altcoins and new derivatives products: FTX
- 🐳 Best for traders with a big bankroll: BitMEX
- 📚 Appendix: Crypto Margin Trading Basics
The Best Exchange for Retail Day Traders: Bybit
We think that Bybit is the best exchange for most retail day traders trading between 0-100 BTC, because it offers dependable service, has lower slippage than other exchanges, and provides a decent number of altcoin trading pairs, along with the ability to exchange between assets within the exchange. The low slippage on Bybit makes it particularly useful for scalpers, who take multiple positions a day. We also found the web app and mobile app to be the most intuitively designed for retail traders.
A long position on Bybit's BTC trading dashboard.
Bybit offers maker orders (limit orders) a 0.025% rebate, and charges taker orders (market orders) a 0.075% fee, which is the same rate that you’ll find on other popular exchanges, such as BitMEX and Deribit. Where Bybit stands out is the low slippage on market orders compared to other exchanges. Slippage refers to the difference between the expected price of a trade and the price that it executes at on market orders, and it’s natural during times of high volatility due to low liquidity in the order book.
One trader tested for slippage across Bybit, FTX, and BitMEX using an algorithm that executed 12 trades at the same times on BTC/USD between 11/22/19 and 12/1/19:
He found that the average slippage on Bybit was 0.037% compared to 0.125% on BitMEX and 0.066% on FTX.
|2-Way Market Order Slippage + Fees||0.22%||0.40%||0.27%|
|Fees on $10,000 position||$22.40||$40.00||$27.20|
|Fees on $100,000 position||$224.00||$400.00||$272.00|
According to this data, fees on marketing in and marketing out of a $10,000 position would have cost $22 on Bybit, $27 on FTX, and $40 on BitMEX. Accounting just for fees, the cost of the position is the same on Bybit and BitMEX, but, accounting for slippage, Bybit was 45% cheaper than BitMEX. Lower slippage on Bybit will help most traders improve profits, but it’s particularly important for scalpers who trade short, intraday moves of 1-2%, where every tick counts.
It’s important to note that this data is contextual, and that actual slippage depends on liquidity within the order book, on timing, and on the size that you trade. But anecdotal evidence from crypto traders does support the notion that Bybit has lower slippage for retail traders:
I’m already a bybit shill. Within reason, anyway.— CryptoGainz (@CryptoGainz1) December 5, 2019
Mex slips my algos harder and overloads more often. The only saving grace is resting orders that protect my stops and not just an index that moves liquidity.
After a lengthy amount of research I can say that hands down @Bybit_Official Is the superior exchange for futures, by far.— Cantering Clark (@CanteringClark) June 22, 2019
If you are disciplined and showing positive expectancy, now might be the time to add a healthy amount of leverage. $btc $cryptohttps://t.co/8Y4boCQPJJ
Bybit’s site is also well-engineered and consistently reliable— which is a lot more than can be said for many other crypto exchanges. Since inception, Bybit has billed itself as a competitor to BitMEX, with no overload and low slippage. Overload refers to a feature of BitMEX’s trading engine, where the number of requests is capped. During times of high volatility, when the requests queue is filled up, the system is “overloaded,” and new requests are rejected. This can be frustrating for traders, who are unable to take on new positions. Unlike BitMEX, Bybit doesn’t suffer from overload, which is one of the main reasons it’s our top pick for retail traders. While other competitors, such as Deribit, also market themselves as “no-overload,” we found that Deribit had a number of service outages over the last year, which is why we recommend Bybit over it.
We also like Bybit because it offers a number of trading pairs beyond BTC, including ETH/USD, EOS/USD, and XRP/USD. Unlike BitMEX’s ETH/USD quanto swap, which uses BTC as margin, Bybit will only allow you to only use ETHas collateral for ETH/USD, EOS for EOS/USD, and so on. This can be a double-edged sword. If you’re long ETH/USD using ETH as collateral, you earn more when the price goes up, because the value of your collateral is also increasing; but, inversely, you lose more if the price drops.
Exchanging BTC for USDT on Bybit.
To facilitate this, Bybit has a built-in exchange that allows you to swap between cryptocurrencies, and it also allows you to exchange your crypto for Tether. The exchange rates are slightly higher than what you’d get on a spot exchange but are pretty reasonable. When we checked, Bybit was offering an exchange rate of $8,564, while the exchange rate on Binance’s spot exchange was $8,572.
Bybit has a dashboard that allows you to see your cummulative profits and losses across different timeframes. (source: SalsaTekila)
We like the slick design of Bybit's web application, which offers a number of simple but useful features for traders. When you place an order on Bybit, a confirmation window pops up that allows you to set a take profit and a stop loss on the ordertl, while also showing you your leverage and liquidation price. You your total realized profits and losses across different assets over the history of your account, which makes it easy to track how you’re doing as a trader.
Placing an order on Bybit's mobile app.
We also found the Bybit mobile app to be the best designed out of all the exchanges we tested, giving traders the ability to rapidly place orders, set stops, and take-profits on the go, as well as manage existing positions.
While we like Bybit a lot, there are some limitations to be wary of. First, Bybit only offers perpetual swap contracts across currency pairs, which charges a periodic funding rate. Over the 30-day period between 12/26/19 – 1/25/20, the cumulative funding rate on Bybit was around 1.26%, which was slightly higher than the stimulative 1.12% funding rate on Bitmex. The average funding rate on both exchanges was roughly .01% per eight-hour window. While funding rates are currently comparable to Bitmex, one analysis showed that Bybit’s funding rates were consistently higher than on other exchanges over the course of 2019.
Bybit doesn’t yet offer futures contracts, which don’t charge a funding fee. While this might not be a big deal for day traders who take quick, intraday scalps, it hampers swing traders looking to hold high time-frame positions across weeks or even months. It also means you can’t take a long and short position on Bybit at the same time without making two accounts. If you do need Bitcoin futures contracts, we recommend going with other exchanges on our list, such as BitMEX and FTX.
Sign up for an account with Bybit using our referral link to get a $90 welcome bonus.
For Traders Who Want It All: FTX
For traders who want to speculate on everything from Bitcoin and altcoins to altcoin indexes, leveraged “moon” and “doom” tokens, and options, FTX is the best option. While FTX only launched in May 2019, it offers a staggeringly wide range of cryptocurrency derivative pairs, index products, and options.
FTX uses a different fee schedule compared to the other exchanges on our list, both of which offer a maker rebate of 0.025% and a taker fee of 0.075%. FTX instead charges fees on all trades—0.02% for maker orders and 0.07% for taker orders. If you’re a scalper who takes a lot of trades, you’ll want to examine the impact this might have on your profitability.
Unlike Bybit, however, FTX offers two quarterly bitcoin futures contracts in addition to a perpetual swap contract for BTC, which don’t charge funding rates. It also offers one futures contract for most altcoin pairs. As we discussed earlier, FTX also came second best in terms of slippage on market orders.
FTX allows you to take positions on many assets that aren't listed on other exchanges. The image above shows a short position on BSV.
Where FTX truly shines is the sheer breadth and variety of products it has to trade. There are more than 20 cryptocurrency perpetual swaps on FTX available to trade, along with futures contracts for altcoins, and spot markets for BTC, ETH, USDT and more. It also offers the ability to trade various indexes that are weighted with baskets of different coins, such as an “Altcoin Index Perp,” “Midcap Index Perp,” and “Shitcoin Index Perp.” The speed at which FTX rolls out these products is impressive—within a week after the “Xi Pump,” when Chinese President Xi Jinping endorsed blockchain, FTX rolled out a “Dragon Index” consisting of Chinese cryptocurrencies.
The image above shows some of the markets available to trade on FTX.
Another benefit of FTX is that it allows traders to use USD in the form of stablecoins as collateral, in addition to BTC, unlike Bybit or BitMEX. That means that you can take long or short positions on cryptocurrencies without needing to be exposed to the underlying collateral.
FTX’s products give traders the ability to speculate on much more than the direction of a specific asset; they can buy options, purchase index swaps, speculate on volatility, and more. It’s the single most versatile exchange on our list, and we recommend it, particularly for altcoin traders.
While we like FTX a lot, there are a number of reasons to be cautious about the exchange. The first is that FTX is operated by Alameda Research, which is one of the biggest market-making firms in crypto. Alameda also serves as the primary market-maker behind FTX. This creates a potential conflict of interest for the exchange. For example, the market-making side of the business could see where retail traders are placing their stops and then target them for liquidity. This would be highly unethical, and we’re not claiming that it happens— but it’s theoretically possible.
FTX offers a lot of really exciting new margin products, but we heavily recommend doing your own research and having a deep understanding of how each product is structured before risking money on it. Some of FTX’s products are complexly structured and almost seem designed to take money away from retail traders.
The yellow line represents the price of Ethereum, while the blue line represents the value of a 10x Eth “Moon” token.
For example, FTX’s “Moon” and “Doom” tokens are ERC-20 tokens that correspond with 10x leveraged positions on a certain asset. The idea is that by buying these tokens, you can take on margin positions without the risk of getting liquidated. In practice, this doesn’t work out as well. On 11/21/19, as ETH was trading at $159, FTX’s moon token was trading at $.0052. Say you bought moon tokens at that price. The price of ETH subsequently dropped over the next month before rising back to $159 on 1/25/20. You’d think that the tokens you bought on 11/21/19 would have also risen back to $0.0052 but they’re actually worth $.0000158 per token— 1/329th of your buy-in price.
This isn’t the fault of FTX; it has to do with the rebalancing mechanic behind how the tokens work. But for retail traders who don’t read the fine print, it’s an easy way to lose money. Similarly, FTX’s Move contract allows traders to speculate on the net number of points BTC has moved in a day. But instead of calculating the expiry based on the distance between the daily open price and the closing price, it uses the time-weighted average price of the last hour before the daily close to settle Move contracts.
These caveats aside, we think that FTX provides the most variety of any derivatives exchange in crypto and is the best option for most altcoin margin traders. While Binance Futures is another good option, the exchange doesn't offer as much variety as FTX.
That said, Binance has a higher reported volume on derivatives compared to FTX, which means that it might be a better option for traders who have a large bankroll and need better liquidity.
Sign-up for an FTX account using this link to receive 5% off fees on all your trades.
The Best for Traders with a Big Bankroll: BitMEX
BitMEX is the 800-pound gorilla in the world of crypto derivatives exchanges. While BitMEX has its flaws, including system overload and slow product innovation, it’s our top pick for traders with large position sizes of 1M+. That’s because BitMEX’s perpetual swap contract is perhaps the single most liquid Bitcoin derivative instrument. In addition to allowing traders to trade BTC/USD and ETH/USD, it’s the only futures exchange on our list that offers alt/btc trading pairs.
BitMEX consistently does between $1 -$2B in notional volume per day, making it the biggest derivatives exchange in crypto. That means there’s more liquidity provided on BitMEX, making it easier for big traders and whales to position themselves.
The chart above shows open interest across various crypto derivatives exchanges. Open interest refers to the notional value of contracts taken on the exchange at a given point in time.
For most retail traders, the higher liquidity of BitMEX won’t matter, because they’re taking small positions. Because BitMEX does higher volume, retail traders can actually suffer from higher slippage during liquidation events and volatile price movements.
But if you’re trading position sizes of $1m and above, BitMEX offers superior liquidity and a spread better than any other exchange on our list. The image below shows the percentage difference between the bid and ask spread on orders over $1m.
Data as of 1/25/20.
That means that, on average, a market order of $1m on BitMEX would execute with slippage of around .01% of price on BitMEX—which is around five times less than the next best option, FTX.
one of the highest volume candles in history and 0 mention of bitmex overload on my feed— Loomdart (@loomdart) September 24, 2019
for as much as everyone shits on the exchange, they're doing a great job and being the highest vol + liquidity derivatives exchange that doesn't randomly go offline
While it’s the most liquid derivatives exchange, with the highest volume, a frequent complaint against the exchange has to do with its implementation of an “overload system,” where traders can be left unable to place orders during times of high volatility. This is because there's a cap on the number of requests that can enter the trading engine's queue. When the engine is full, new orders are rejected until the queue empties out a little. This only happens in rare occasions during high-volume periods in time, but it happens frequently enough to be a major irritant for traders.
Another large downside of BitMEX is that product innovation has slowed in recent years. As Three Arrows Capital's Su Zhu puts it:
Prediction: Bitmex % dominance of overall cryptoderivative market will decrease massively in 2020— Su Zhu (@zhusu) December 24, 2019
1) zero product innovation
2) loss of interest in trading alt/btc derivs
3) many agile competitors growing v fast across many horizontals and attracting new clients
For trading Bitcoin exclusively, it still gives traders more options than Bybit, with a perpetual swap contract and quarterly bitcoin futures contracts available. It also offers an Eth/USD quanto swap, along with six altcoin /BTC futures contracts, which, to be fair, is more than Bybit. On net, however, BitMEX has delisted more products than it has added since 2018. BitMEX also charges an outrageously high 0.75% fees for market orders on altcoin contracts, which means altcoin traders are better suited looking toward Bybit or FTX.
If you’re a whale trading large size, the liquidity on BitMEX can’t be beat. But for most retail traders, this won’t matter, and you’re likely better off going with Bybit or FTX.
Sign-up for BitMEX using our referral link here. You’ll get 10% off fees for your first six months.
Appendix: Crypto margin trading basics
If you’re new to margin trading, there are some common mechanics across crypto derivatives exchanges that you should understand. Below, we provide a basic explanation of the how margin works on exchanges, perpetual swap contracts, and liquidation mechanisms. Readers should take note that these are simplified explanations. Crypto derivatives can be complex, with the same products working differently on different exchanges—it’s important to do your own research.
Futures contracts are an agreement to buy or sell an asset at a predetermined price at a future date. On BitMEX, for example, the current price for one BTC on the XBTH20 futures contract settling in March is $8,510, which is a $162 premium to the index price of BTC at $8,348. When the market is bullish on the underlying asset and expects it to rise in price, the futures price will generally have a premium, which is referred to as contango. When the market is bearish on an asset, the futures contracts will be at a discount to the current price, which is known as backwardation. If I purchase one BTC worth of XBTH20 or 8,510 contracts, and the price of the March contract at settlement in March is $9,000, I pocket the difference, which comes out to around $510. If the price of the contract is below $8,510, I lose the difference. In traditional markets, futures were created as a way to hedge against risk. Today, they’re primarily used as a speculative instrument. If you buy a futures contract, you don’t have to wait until the contract expires— you can sell it at any time before.
While most cryptocurrency derivatives exchanges offer futures contracts, the most popular and liquid instrument is what’s known as a “perpetual swap contract,” pioneered by BitMEX. A perpetual swap is similar to a futures contract but, as the name implies, doesn’t have an expiry date. To keep the price of the swap contract close to the index spot price of an asset, exchanges charge a funding rate, typically in eight-hour windows. If the price of the perpetual swap on BitMEX is $8,381 per one BTC, and the index spot price is $8,378, the exchange may charge longs a .01% funding rate to be paid to short positions every eight hours. If the swap price is lower than $8,381, the funding rate might flip to pay long positions. Funding is a mechanism that is used to tie the price of the swap contract close to the index price.
With both futures contracts and perpetual swaps, traders can trade on margin, meaning that they can leverage their collateral to take larger position sizes. For example, with 1 BTC collateral, with the perpetual swap trading at $8,381 per BTC, you could take a 2x leveraged long position of 16,762.
Most Bitcoin futures exchanges now offer up to 100x leverage, meaning that with one BTC, you can take a position worth 100 BTC. This is hardly ever a good idea. At a price of 1 BTC = 8,331, a 100x leveraged long position would be worth around $833,100. If the price of BTC went up 10%, your return on equity would be 1000%. However, because you’ve taken on such a high-leverage position, a brief dip in the price of BTC to 8,293 would liquidate your entire position. Given the underlying volatility of BTC and other crypto assets, overly-leveraged positions tend to get liquidated.