Crypto Derivatives Trading Labeled Toxic as Synthetic Bitcoins Claimed Lethal


Synthetic Bitcoins Are Much More Dangerous Than Real Ones

Derivatives trading has been going through a phase of resurrection as of late. The reversal in the crypto market, from bullish to bearish, has resulted in the traders increasing the leverage and rushing to swap BTC derivatives that promise greater risk and reward. Even though platforms like Bitmex and Deribit have profited from the boom in synthetic assets, numerous traders have been seeing unpredictable losses.

If investing in Bitcoin is for daredevils, then derivatives trading is like speeding down that road on a motorbike at 160 mph. DDoS attacks, downtime, log-in errors, and sudden price spikes have caused traders to lose everything. The same act on 100x leverage will result in the investor getting liquidated on the spot. There is absolutely no margin of error and is not for the faint-hearted. Even experienced traders are taking a huge risk, over and above those associated with bitcoin’s ‘natural’ movements.

There are three types of synthetic options available to Bitcoin traders: futures, derivatives, and margin.

  • Futures: A type of derivative contract that can include leverage of up to 100x, futures are an agreement to buy or sell an asset – in this case, synthetic BTC – at a future date for a certain price.
  • Derivatives: A type of contract whose value is derived from that of another asset. On sites like Bitmex, it’s possible to trade options, swaps, and futures – all types of derivatives – with the possibility of higher returns thanks to leverage which multiplies the potential profit or loss, depending on how the trade goes.
  • Margin: A type of trade in which money is borrowed from a broker with the expectation that they will be repaid upon generating a profit. A minimum level of equity must be maintained on the platform, typically around 30%, to cover losses. If the balance falls below this, additional funds must be covered to account for the shortfall.

Some platforms, such as Bitmex, Whaleclub, and Deribit, offer all three. Traditional exchanges such as Bitfinex, Hitbtc, and Poloniex offer margin trading only, and then there are the likes of Okcoin which offers futures and margin but no derivatives.

Notably, crypto social media is full of stories of misery from leveraged traders who got stood out and had their position liquidated. If traditional trading is cocaine-like in its addictiveness, high leverage is crack cocaine. One of the biggest gripes for traders, particularly on Bitmex, is those unforeseen events that can destroy even the best-laid plans.

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