Deribit - Bitcoin Options Platform
5 stars - "Deribit - Bitcoin Options Platform" Deribit - Bitcoin Options Platform

Deribit - Bitcoin Options Platform

deribit.com|Bitcoin Futures and Options|2016 logo
Written on: July 30th, 2017 | Author: David M
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  • The one and only bitcoin options trading platform in the market, open to US traders
  • Tight spreads and low fees, with low but adequate volume on the futures side
  • Options volume is low for day traders, but can serve purpose for those seeking to manage bitcoin portfolio

Trade Bitcoin Futures and Options

Deribit is a Bitcoin Options Trailblazer

Deribit, the 'deri' short for derivatives, the 'bit' short for bitcoin, is a futures and options trading platform utilizing bitcoin exclusively for depositing, withdrawals and trade collateralization. Their futures offerings are open to anyone regardless of location, and traders will enjoy tight spreads, leverages of 10:1, and volumes that, while by no stretch of the imagination are top of market, are definitely adequate.

Where Deribit really could disrupt the market is on the options side.  For those seeking a platform to day trade options, Deribit's option volume is not there yet, though they are the closest.  If, however, you are looking to more actively manage and hedge your existing bitcoin portfolio, Deribit's option platform offers a few interesting new tools.  And should market demand for bitcoin options ever materialize, we would expect Deribit to emerge as a market leader.

Opening an account with Deribit

Registration requires only an email, and new users can begin trading after six network confirmations. In other words, depending on your reading speed, and assuming you do not need to buy bitcoin, you should be able to finish this review and begin trading at within 10 to 15 minutes.

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Derivative trading at Deribit

Deribit offers monthly and quarterly expirations on both options and futures.

  Bitcoin Futures Bitcoin Options
Contract Size $10 1 bitcoin
Leverage 10:1  
Maker Fee -.02% 0%
Taker Fee .05% .04%
Settlement Fee .025% .02%
Settlement Time 8:00 UTC 8:00 UTC

In the event that options smaller than 1 btc are being traded fees are capped at an eyebrow raising 20% of the option price. In other words, really try to trade full contracts. Note that a negative fee indicates a rebate.

Bid/ask spreads on the futures side are usually quite low, generally between $1-$2 per bitcoin, a good deal less (down to a penny) during busy trading periods. Twenty-four hour trading volume on the futures side comes in around 500-1000 bitcoin and can triple when the market is volatile. Not the best in the market, but adequate.

The bitcoin options market has a very low trading volume of around 70 bitcoin daily. Strike prices are wide - 100 point increments - to be expected considering the trading volume.

Trading Futures at Deribit

Each futures contract is worth $10, and the leverage is set automatically at 10:1 on the buy side, a bit lower on the sell side. The mid-market rate is determined by a Deribit index of five different exchanges, with the outliers on the high and low side dismissed, and the average of the middle three used. The exchange prices are shown at the footer for reference.

footer

The expiration price is determined by an average of the Deribit index, taken every 6 seconds for the 30 minutes prior to settlement - or from 7:30 until the 8:00am UCT settlement.

futures-screen

A market order is placed simply by outbidding the order book, which will incur a makers fee. To minimize fees, the "post only" command at the bottom of the trade slip does not instantly match orders, and your bid/ask will enter the order book and incur the lower maker fee.

open-orders

Once an order has been placed, it will move to positions or open orders. From the open orders tab you may edit or cancel; note that the interface offers only a breakdown of margin requirements, profit/loss and a liquidation point; you may not add order protections like stop loss / profit taking, nor may you close the position. Closing open positions must be done from the trade slip, ditto setting stop loss / take profit instruction (i.e. placing a sell limit order when you have an open long, and vice versa), which is less comfortable and more prone to accident for the beginning trader. Advanced instruction like trailing stops are not available.

Bitcoin Options at Deribit

There is an issue with deribit's options volume; however, this seems to be more of a macro issue in the wider market. For whatever reason, demand for options trading has not really picked up; deribit is currently one of a very few options platforms, and is well positioned should demand for bitcoin option trading increase.

Deribit is the market maker for its options exchange, meaning it sets the bid/ask on the different strikes, which are set $100 apart. Even with the low volumes, there are some interesting opportunities for bitcoin traders - for instance, some might find the bids on out-of-money call options quite attractive.

options

Note that deribit offers European style options, meaning options may only be exercised at expiration, which happens automatically.

Margin Requirements

Accounts are set with an initial margin requirement of 10% and are required to maintain a margin of 3% of a trader's position. The margin balance is an account of all margin available in the account - the equity of your entire account, which is all considered usable margin. If the account margin balance - the cash balance combined with the profit/loss on futures' positions - falls beneath the maintenance margin requirement, the deribit risk engine will begin a process of auto-liquidation. Auto-liquidation closes positions until the account is back in equilibrium, i.e. the margin balance again surpasses the maintenance requirement.

Insurance fund

Deribit funds a 25 bitcoin insurance account for protection against position bankruptcies. This is Deribit's attempt to avoid socialized losses or other less than optimal alternatives like Bitmex's auto-deleveraging. In their two years of operation, Deribit has not yet needed to dip into the insurance fund, so good on them.

Bottom Line

As is the case with many innovative businesses, Deribit exists due to CEO John Jansen's frustration with the lack of cryptocurrency option trading platforms. The product is quite good - and also a bit ahead of the market. If bitcoin options trading eventually takes off, expect Deribit to be a market leader. As it stands, there are some interesting money-making opportunities using options instruments. Additionally, the futures platform has adequate liquidity and is open to traders of any nationality or location.

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