Binance strengthens its grip on the Bitcoin derivatives market

Crypto industry titan Binance is further entrenching its foothold in the Bitcoin derivatives market. 

The cryptocurrency exchange today released Bitcoin options trading for its mobile app—a move that could enable Binance to capture even more of its competitors’ market share.

Options are investment contracts which give traders the right, but not the obligation, to purchase or sell an asset during a specified timeframe. As the name of the investment product suggests, you have the option to buy or sell something, but you don’t have to, and you pay a fee for the privilege. 

“Options contract is a much-anticipated product, allowing the traders and miners to effectively buy insurance on their positions and for speculators to take advantage of the market movements as well. There are more features and products in the pipeline,” Binance CEO Changpeng Zhao stated in a blog post.

The company also said that Bitcoin options will be available for web/desktop users soon, and that options may be available for other cryptocurrencies in the future as well.

Binance’s options will have a minimum maturity of 10 minutes and a maximum maturity of one day. In its post, Binance said that trades will only be profitable if the gains outweigh the premium paid for each contract. But your losses are limited only to what you put down as a premium—the upside, if you place your bets correctly, could be “unlimited,” the company claims.

Of course, it cautions that trades may not execute properly at times of frenetic market activity and volatility, and that stop losses to exit trades may be rendered inert if liquidations come too quickly (something we saw on Bitmex during the last price drop).

“There is no guarantee that your options purchase will execute at a profit after the premium has been deducted. Most options purchases will not be profitable, but a minority will be very profitable. Please use at your own discretion,” the website announcement reads.

Not content with leading spot market crypto trading, Binance launched derivatives trading in the fall of 2019, bringing heavyweight competition to a sector of the market that has an outsized impact on trading volumes and, by extension, price. 

Seychelles-based crypto exchange Bitmex had largely dominated this market since it launched in 2014, but the addition of derivatives by other exchanges such as OKEx, Huobi and Binance (along with newcomers like FTX and Deribit) have cut into the former market leader’s bottomline.

Binance’s share of this market, not unlike Binance’s presence in the spot market, has grown tremendously since it launched derivatives half a year ago. It’s currently the king of the hill, with $3.4 billion in 24-hour futures volume, according to analytics firm Skew.

Binance’s strategy appears to be paying off, outpacing its competitors within just six months of operations. And as it adds options to its suite of trading products, Binance threatens to gobble up even more market share.

“The strategy proved to be very effective in driving the growth of Binance Futures and helping us enhance the futures product. I’m confident that it will also boost the growth of our options product,” Aaron Gong, VP of Binance Futures, said in the blog post.