Intro

FTX is affiliated with Alameda Research, a trading firm that controls $100M in crypto assets and trades up to 15 times that each and every day. This association ensured FTX had ample liquidity to start up a new crypto derivatives exchange.

But ample liquidity is not enough to recommend FTX over the more volumed competitors, and so the question should immediately be asked – why would anyone choose FTX over the competition? To this, there are two answers.

First, and less importantly, FTX offers traders multiple crypto deposit options. This is nice for anyone out there that wants to deposit in bitcoin cash or different stable coins.

More interestingly, FTX has established an  innovative crypto indices concept, allowing traders easy exposure to a basket of altcoins. The ALT index covers nine relatively large alts, the MID index covers 24 medium sized coins, and the SHIT index covers 58 small caps. If you are interested in easy, leveraged exposure to a basket of shitcoins, then read no further you have found your oasis.

Getting Started

A major distinction between FTX and the competition is that KYC is required to withdraw more than $1,000 USD equivalent per day. While the exchange is crypto-only, FTX accepts fiat deposits for their OTC services, and the headquarters of parent-company Alameda is in San Francisco. Setting up a KYC process preempts a future in which the management team is led out of their offices in handcuffs. So it sucks that you need to submit KYC materials, but it is also understandable. 

FTX accepts deposits in a few different cryptocurrencies including bitcoin, ethereum, bitcoin cash, and litecoin, as well as a host of different stablecoins – Tether (USDT), Trust USD (TUSD), USD Coin (USDC), or Paxos (PAX).  
All positions must be collateralized in USD coins, meaning crypto deposits must be converted to buy tokens (which will be discussed shortly), to trade in futures, or to trade in perpetual swap markets. While this additional step might be a bit confusing, it is necessary to facilitate accepting deposits in multiple cryptocurrencies. 

Margin Trading with FT Exchange

Instruments offered for trading

There are 15 different markets available for trading, each with a spot and futures market.  

Spot Market

The spot market utilizes the perpetual swap, which is an exchange traded derivative meant to track the underlying value of the relevant asset. FTX bases the underlying value on an index averaging the price from up to 10 different exchanges, depending on the crypto being traded.

In order to ensure that pricing remains somewhat close to the index, FT Exchange charges a thrice daily funding rate based on the 24 hour price premium, in which shorts pay longs, or longs pay shorts. In other words, if the exchange is on average higher than the underlying index, longs will have to pay the shorts to try and jam price back in line.

Futures Market

FTX offers one future expiration for each crypto or index. Unlike the spot market, futures positions require no funding rate, meaning it is cheaper to hold a futures position longer. However, perhaps because traders prefer an instrument that tracks the current price, the spot market volume dwarfs the futures markets and so spreads are usually narrower. Additionally, as futures trade at a higher (or lower) price than the spot price, it can be tricky to get a handle on the market, if your purpose is speculation rather than hedging. 

Platform

In terms of the trading platform itself, a few things jump out. The liquidity is ok, thanks to the parent company, but its nowhere close to deribit, let alone bybit, or of course bitmex.

Traders might take time getting used to the lack of leverage slider. Instead, simply indicate the size of the order you would like, which can be set up to 101X your balance.  This is limited to 10X, and increasing to 20, 50, 100, or 101 may be done via the settings.

Margin maintenance is set at 6% regardless up to 50X, above which maintenance is set at .6%.

The fees are set as below:

Positions of 50X or greater will be subject to an additional .05% maker and taker fee. 

If you hold a certain amount of FTX’s FTT token, you can get yourself a trade discount. Seems a bit contrived to us, but watch this space!

Trading Tokens

FT Exchange offers users the ability to purchase tokens that represent a position – either BULL (3X long), BEAR (3X short), or HEDGE (1X short) – on all the different futures markets available on the platform. Tokenizing these positions allow a simplified method for customers to gain exposure or hedge positions. 

ERC20 tokens, represent the underlying asset, and they may be withdrawn to any ETH wallet.

Tokens carry a (much) higher fee than standard futures trading. Creating a token comes with a .1% charge, while a daily management fee of .03% replaces (and greatly surpasses) the funding rate applied to standard futures positions.  

While the tokens are a neat concept, we do not see any advantage to using them instead of trading directly on the platform. At first glance, we thought these tokens were required to trade FT Exchange’s innovative index offerings, like the SHIT Index to name everyone’s favorite. But you can actually trade the index directly on the future’s platform.   

And while it is pretty cool that these tokens may be withdrawn to your own ERC20 compatible wallet, that does not actually provide any additional security. The token represents a derivative position redeemable through the FTX platform – or in other words, a contract exchangeable for the underlying value. It is up to FTX to honor that value, regardless of where your token is held. So if FTX is hacked, your token will be safe, but the value it represents will no longer exist.

Perhaps the tokenization is a prelude to some future decentralized leveraged trading platform – which would be pretty cool, but right now this is just speculation on our uninformed part.

In any event, if you do prefer the convenience of a token, you may easily convert it to a stable coin or crypto of your choice, instantly, through the tokens library. Just click convert!

OTC trading at FTX

FTX offers you whales an over the counter solution for trading large amounts off exchange. Indicate through their OTC interface the amount of crypto you would like to buy, and FTX will quote the price. If you have the necessary amount in your account, you can instantly execute the trade; if you don’t, the prices are indicative and subject to change.

Bottom Line

So FTX is a pretty cool product that offers some unique value, particularly the alt coin indexes. While the value of the tokens are somewhat missed by us – perhaps convenience is value enough? – they do perhaps portend of innovations to come. 

If you are not really that interested in exotic instruments, and just want to trade bitcoin, ethereum or litecoin with leverage, you are likely better served by bitmex or bybit. However, if you are looking for some exposure to the alt markets, FTX is a great product to check out.