FTX is a cryptocurrency exchange built by traders for traders. It offers innovative products, industry-first derivatives, options, volatility products, and leveraged tokens. They have built robust trading platforms which professionals and first-time traders can use. Furthermore, an all-star team started FTX from leading Wall Street quant firms and tech companies. Hence, in this article, we’ll be having a look at FTX futures trading, and discuss all the important things that you should know before delving into futures trading.
Table of Contents
- Types of Futures Contracts traded on the FTX exchange are – this quarter expiry, next quarter expiry, and a perpetual contract.
- Collateral for futures is in stablecoins only at the FTX exchange.
- Furthermore, on the last Friday of every quarter the quarterly futures expire to a TWAP of their associated index o.
- Liquidation Risk is determined with Estimated Liquidation Price and with Maintenance Margin Requirement.
FTX Futures Trading
FTX exchange offers futures trading in crypto coins like BTC, ETH, EOS, XRP, and USDT. Each coin can be traded in three types of futures contracts:
- Expiry this Quarter
- Expiry Next Quarter
- A Perpetual Contract
Crypto Exchange Index
What is unique to trading in FTX crypto futures? Let’s have a look.
- FTX futures are stablecoin settled: It means traders will have to deposit stablecoins as collateral for all of the futures contracts, and the PNL will be settled in stablecoins.
- It also means the trader will get legitimate USD-based price exposure and settlement without the need for a bank account.
- Moreover, the traders can also use the same currency base as collateral for all the contracts, making it easy to shift positions around.
- All futures would have a unique backstop liquidity provider program if short-activated, in case the trader’s account is in danger of bankruptcy. Therfore, this helps avoid clawbacks.
- Futures here have careful must and measured margin calls to avoid significant 1-hour price dislocations.
Collateral in FTX Futures Trading
The accepted stable coins are USDC, TUSD, and PAX. Furthermore, you as a trader can deposit or withdraw collateral by going to the wallet page and depositing any stablecoins.
The deposited stablecoins will show as a credit in the account with USD, which is then used as collateral for all future trades.
Balances of the following coins also count towards collateral:
|Coin||Weight (total)||Weight (initial)||Coin||Weight (total)||Weight (initial)|
Click on this link for more details.
- By default, all positions use the same collateral pool.
- Additionally, all USD, non-USD fiat, and cryptocurrencies mentioned in the table in the trader’s wallet count as collateral.
- Each subaccount has one central collateral wallet and uses cross margining for the account.
- Each subaccount has a separate margin and collateral from other subaccounts.
Important to Note
If the trader wishes to use an isolated margin, they can do so by creating a sub-account for that position and moving in collateral.
Even though the PnL of hedged positions will cancel out each other, but it will not reduce the collateral requirements for both positions even on the same underlying index. Suppose, you have a short position on BTC-Perpetuals, then the collateral requirements for adding a long BTC-0327 position is going to be the same as an account without the temporary position.
It is to be noted that an account can only increase its position as long as its Margin Fraction is above its Initial Margin Fraction. For small positions, this means that the Margin Fraction must be at least 5%, which further means that accounts can only initialize positions to a maximum of 20x leverage.
As your position size increases, so does your Initial Margin Fraction. In addition, you can select maximum leverage (per subaccount) on your account page. You may not put on a position that would put your leverage higher than that. Your maximum initial leverage is min (1/ initial margin fraction, account leverage).
- For instance, if you deposit $1,000 of collateral into your account, then the maximum position size you can put on is:
- 3x Leverage: $3,000
- 5x Leverage: $5,000
If your Initial Margin Fraction is 12%, then that means that your maximum leverage is 1/12% = 8.333x, so if you deposit $1,000 of collateral, you could put on a position of size $8,333.
If the Margin Fraction falls below the Maintenance Margin Fraction, the account will begin to get liquidated.
- For instance, if the maintenance margin fraction is 6%, you will start to get liquidated once you are 16.66x leveraged.
If it drops below the maintenance margin, the FTX risk engine will send liquidation orders in the market to close down your position. Likewise, if it drops below the auto-close margin fraction, the position will begin to be closed at the zero price against the backstop liquidity providers.
FTX Futures Trading with Quarterly Expiry
The quarterly futures expire to a TWAP of their associated index on the last Friday of every quarter between 2 am and 3 am UTC.
If the trader holds an expiring futures position, they will be credited with USD PNL equal to the expiration price shortly after.
FTX Perpetual Futures Trading
To be brief perpetual futures are similar to traditional futures in a lot of ways, except they don’t have an expiry. If you wish to understand more about perpetual futures, you can visit our blog.
Quarterly futures will expire on the said date, but perpetual futures have funding payments every hour. Specifically, they measure the 1-hour TWAP of the perpetual future and the 1-hour TWAP of the underlying index every hour.
If the perpetual is trading at a premium to the underlying index, long positions pay the short positions. Conversely, short positions pay funding to long positions if the perpetual is trading at a discount to the underlying index. The funding rate to be paid/received is determined by the following formula:
Position size * TWAP of ((future - index) / index) / 24
This is somewhat similar to the futures expiring once per day. In particular, if you sell a BTC perpetual future that is trading 0.10% above the underlying index all day, you will receive a total funding payment of 0.10%.
Leverage while Trading
FTX supports up to 20x leverage. The trader can adjust maximum leverage on the settings page. The maximum allowable leverage on FTX is lower for significant positions.
Determining Liquidation Risk
There are two ways by which a trader can determine the liquidation risk on the platform as follows:
Estimated Liquidation Price
On the market page of the FTX exchange, there is an informational box on the right-hand side. The traders can find Estimated Liquidation Prices there. If the trader doesn’t have any other positions, the platform will liquidate the existing situation if the future price gets there.
Maintenance Margin requirement
In the informational box, the traders can find the maintenance margin column, the current amount of leverage is used, and the trader’s present margin fraction (which is just 1/leverage).
Your account will begin to get liquidated if your margin fraction drops below the maintenance margin requirement, also displayed in the box.
Maintenance margin fraction starts at 3% and increases with position size, so you will begin to get liquidated if your account gets to ~33x leverage (or less depending on position size).
In the example above the user has a margin fraction of 8%:
Position size = 1 BTC * 10,406.25 $/BTC = $10,406 Total collateral = $808.73 Margin fraction = 808.73/10406.25 = 8%.
They will get liquidated if their margin drops down to the maintenance margin requirement of 4%. That means they’ll get liquidated if markets move 8% – 4% = 4% down.
Steps to set up an FTX Trading Account
It is easy to set up a trading account on FTX for spot and futures trading, as you can access it from the computer browser or their mobile application.
- First of all, visit the official website of FTX and click on register.
- Thereafter, enter your details and sign-up to the platform.
- Then, set up 2-Factor Authentication to trade securely.
- Once you’ve signed up, you will be promoted to set up a 2-Factor Authorization. FTX allows you to use either Authy, Google Authenticator or SMS.
- Moreover, FTX is beginner-friendly as it does not require KYC verification to get started. Without KYC, you can withdraw up to USD 1000.
- Finally head over to the FTX futures trading tab, and select the pair you wish to trade.
Their basic Tier 1 KYC (Email, Name, and Country of Residence and region/province), allows you to withdraw up to USD 2000 per day. However, should you plan on trading more, they recommend that you complete Tier 2 KYC verification for unlimited crypto withdrawals.
Fees Structure on FTX Futures Trading
FTX offers a tiered fee structure for all spot* and futures markets, as follows:
Traders can stake their FTT coins to earn a passive income by crypto staking. Furthermore, the FTT stakers receive maker rebates as low as -0.0030%, and it costs only 25 FTT to have 0 maker fees. See here for more information, and stake your FTT here.
Discount for FTT holders
In addition, the platforms offer fee discounts for FTT hodlers. Moving on, the current discounts are based on your FTT holdings as shown in the table below:
- The exchange doesn’t charge any fees on futures settlement.
- Furthermore, leveraged tokens have a daily management fees of 0.03% and redemption and creation fees of 0.10%.
- There are also no deposit fees and withdrawal fee is varying wrt to coins.
- Costs for move contracts depend on the price of the underlying index, not the price of the moving contract. The exchange charges no fees on OTC trading or converting in your wallet. Furthermore, all costs are built into the price you are quoted.
FTX Futures Trading: Conclusion
The FTX crypto derivatives exchange is one of the most accessible platforms to start trading small for beginners and professionals too. They have many facilities for all types of traders and up-fail-safes in their trading procedure to protect all their clients from volatile movements. Moreover, FTX provides special discounts and deals for traders to inspire them to trade more intelligently and wiser. Therefore, hit the below button and sign up for FTX futures trading.
Frequently Asked Questions
Participating in the Backstop Liquidity Provider program means that you pledge to take on the positions from accounts near bankruptcy. As part of this program, BLPs must keep a minimum of $500k of balances on FTX and be willing to absorb a minimum of $0.1m per minute and $0.3m per hour of liquidations. In addition, BLPs may be required to meet a market-making standard.
The term clawback or clawback refers to any money or benefits that have been given out but are required to be returned (clawed back) due to exceptional circumstances or events, such as the monies having been received as the result of a financial crime or where there is a clawback provision in the executive compensation contract.
Perpetual futures don’t expire. Instead, each perpetual contract has a funding payment every hour where longs pay shorts equal to [1-hour TWAP of Premium] / 24. This helps to keep the price of the perpetual futures in line with the cost of the underlying index without ever closing down positions for expiration.