BitCoke crypto Quanto Swap

Trading tools can be a lucrative activity. The problem is finding great tools to trade on the best platforms. Without information, traders in the asset space's capital flow function cannot decipher and select them.

In the crypto space, traders maintain the movement and liquidity of assets. As a result, they retain the volatility for which we know the cryptocurrency space. As profitable as digital assets can be, there are risks associated with trading. The best risk mitigation strategies take into account the positives of the market and mitigate the negatives.

Derivatives trading provides the best framework for this and more. We will tell you about the BitCoke cryptocurrency derivatives trading platform, and you will learn how BitCoke derivatives trading happens. 

What are crypto derivatives?

Cryptocurrency derivatives are contracts between parties whose value is determined by cryptocurrencies. These cryptocurrencies serve as the basis for contractual obligations. Such derivative contracts typically contain terms and conditions between the parties to predict the underlying asset's price in the future.

Why it is worth trading crypto-assets 

The advantage of cryptocurrency assets is that they offer traders many benefits while keeping risks low. First, traders have access to maximum profits without the risks associated with trading the underlying asset.

The second advantage is that traders choose a higher price differential when making transactions, which increases their potential profit. But, again, this is different from trading the asset directly.

Third, traders now have access to a wide range of options and better trading conditions that are not subject to market volatility. As a result, it allows them to stabilise profits on trades.

What is BitCoke?

BitCoke is a Hong Kong-based exchange registered in the Cayman Islands. It launched in 2020.

BitCoke derivatives trading platform advantages 

Like a few of its highlights, BitCoke states that they have a high-performance trading engine, excellent liquidity (which we have not been able to verify, though), cold storage asset isolation and Quanto swap. Quanto swap means that you can "support any crypto as margin to trade all contracts available conveniently".

OTC desk.

Another benefit of the platform is that they have an OTC desk. With an OTC desk (an acronym for Over The Counter), you can achieve larger trades without the risk of "slippage", which we call price activities due to large transactions.

What types of crypto derivatives are there?

There are four types of crypto derivatives on markets and trading platforms. These include futures, options, swaps and open-ended contracts. Futures are specific contracts that look at the difference in asset prices at a certain point in the future.

Options are contracts that provide the right to buy or sell underlying assets at a particular time in the future. Swaps are contractual agreements between traders to exchange cash flows based on the underlying asset in the future, while open-ended contracts are open-ended and have no settlement period.

These four contracts determine the price behaviour of cryptocurrencies as traders choose to use them for many purposes and utilities. 

Leveraged Trading

BitCoke also offers leveraged trading on its platform. It means that you can acquire a higher exposure towards a particular crypto's price increase or reduction without having the assets necessary. You do this by "leveraging" your trade, which in simple terms means that you borrow from the exchange to bet more. You can get as much as 100x leverage on this platform.

BitCoke vs. Competitors

This article aims to explain the difference between BitCoke and its counterparts in terms of product and function:

1. BitCoke's Quanto swap perpetual contract, as it doesn't expire, you don't need to worry about the settlement at some point in the future, which amounts to holding a position in the underlying spot market by up to 100 times leverage.

2. Liquidation Benchmark: Index Price vs Current Price.

BitCoke collects Index prices from leading spot exchange data feed and averages spot prices out to avoid untenable liquidation due to lack of liquidity or market manipulation.

Frequently, We may see that other exchanges that apply the current price benchmark carry out liquidation at unfair prices during extreme situations. These undesired liquidations are primarily caused by the lack of liquidity or abnormal costs maliciously manipulated by sure influential market participants, and these strange activities often take a toll on retail users.

As for BitCoke, the system starts liquidation only when the Index price crosses the liquidation price.

3. Loss Offset Procedure.

BitCoke applies a variety of methods to reduce systemic losses.

First, BitCoke applies a dual Risk Limits scheme on all Contract accounts to impose up-limit position quantity for each Settlement Account and Quanto swap contract. In addition, the system dictates the more significant positions in size entail a higher maintenance margin ratio, reducing the likelihood of forced liquidation of these prominent positions and consequent Auto-Deleveraging for other users.

On top of Risk Limits, BitCoke adopts a more flexible and efficient liquidation process, trying to release margin by reducing the risk limit of account or cancelling pending orders to meet the maintenance margin requirements and avoid forced liquidation.

After this, if liquidation still is inevitable, the liquidation engine will take over the position and unwind it in the market. If the liquidation orders cannot be executed, the BitCoke will initiate ADL, Auto-Deleveraging system. The rationale of ADL is to liquidate the opposing positions of those unfilled liquidation orders. The system will unwind the opposite positions based on leverage and profitability order. In other words, highly leveraged positions will be the first to be unwinded. 

However, the Profit-Loss sharing mechanism adopted by OKEx and Huobi specifies each user with a profitable position is obligatory to undertake the loss of forced liquidation. In contrast, BitCoke only downsizes some of the highly-leveraged positions. 

Three risks of derivatives

Derivatives have three risks. Naturally, you should consider the risks if you will use BitCoke Quanto Swap in the Philippines.

Derivatives on highly volatile assets such as cryptocurrencies should only be used after careful study of the instruments themselves and how they work. Otherwise, there is a high risk of losing money completely and going into deep negative equity:

1. The most dangerous thing is that it is almost impossible to know the actual value of any derivative. That is because it is based on the value of one or more underlying assets. That's why mortgage-backed securities were so dangerous to the economy in 2008.

No one, not even those who created them, knew their value when house prices fell. So banks stopped trading them because they couldn't value them.

2. The other risk is leverage. Between 2 and 10 percent of the contract is on a margin account to maintain ownership. So covering it can lead to huge losses.

3. The time limit. It is one thing to say that the cryptocurrency market will grow. It's another thing to predict precisely when.

What is hedging

Hedging is the insurance of risks in the financial markets. An investor resorts to it when they fear that the price of an asset bought or sold may change in an undesirable direction.

Simply put, hedging attempts to find an equilibrium in a particular market instrument. To do this, investors take the opposite position on an asset.

For example, if they bet on an asset to rise in value and buy it (this is called a long position), what part of the money they can put into a short position (a short position - that is, to fall in price) to hedge the risk.

If the assets that an investor hedges continue to rise in value, it reduces their potential profit. But if the assets lose in value, the hedge minimizes the size of the loss.

A trade that may turn out to be a loss is outweighed by a trade that will be profitable under the same conditions.

Will crypto derivatives take over the DeFi space?

Many in the DeFi industry have wondered whether crypto derivatives will become the new DeFi standard. There are opportunities for this to happen. Decentralized crypto derivatives platforms offer traders many unique ways to trade and preserve capital. Innovation is paramount in this space. As long as innovation continues, crypto derivatives will lead the trading landscape in the DeFi space. If you want to start trading BitCoke derivatives in the Philippines, we recommend registering online. That way, you can start earning and changing your life.