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Binance having hit $295 million in traded volume as of April 20, become the largest options venue in cryptocurrency market

Cryptocurrency exchange Binance claims to have become the largest option platform on the market, with $ 295 million in trading volume as of April 20.

In an interview, Binance Futures vice president Aaron Gong said:

“Binance had overtaken its counterparts by daily traded volume on April 14 — just one day after its official launch. The contract had been designed to tackle what Binance perceived to be the key drawbacks of existing crypto options products — low liquidity, high premiums, and large spread.”

binance-having-hit-295-million-in-traded-volume-as-of-april-20-become-the-largest-options-venue-in-cryptocurrency-market

Aaron Gong, the vice president of Binance Futures

Binance claims to have become the largest options venue in the cryptocurrency market

Options contracts offer traders the chance to purchase either a right to buy (a call option) or sell (a put option) on a given asset at a specified “strike price.” Binance is offering the American, as opposed to the European, version of the derivative, in which traders can exercise their rights — i.e. settle the contract at the chosen strike price — at any time before or on the expiry date itself.

Gong noted that:

“The existing crypto options on the market typically offer a wide range of expiration dates and strike prices, including long-term durations that can extend up to 100 days and even longer. This market structure creates a fragmented liquidity landscape, where contracts that are far out-of-the-money and furthest away from the expiration date are notoriously illiquid. As such, trading with those contracts may pose challenges to transaction costs and trade execution.”

Binance’s BTC / USDT options contracts are designed with a lower time frame. Besides, Binance also focuses more on the supply of liquidity for the product. The contract is a simpler version of the traditional contract type. These contracts will be provided to traders to reduce barriers to the derivatives market.

In the future, Gong said:

“The contract is a simplified version of traditional options and is catered to retail users specifically, with the aim of lowering barriers to entry for derivatives trading. The exchange has chosen to offer the American, as opposed to the European, version of options, in which traders can settle the contract at the chosen strike price at any time before — and including — the expiry date itself.”

Gong gave a concrete example of how an options contract works, outlining that:

“If a buyer buys a Binance Call option with a strike price of $7,000 and a premium of $100, the breakeven price will be $7,100 – the sum of the strike price and premium. To exit the trade profitably, the underlying asset should move beyond $7,100 […] Conversely, if the underlying asset fails to move beyond the breakeven price at expiry, the option will expire worthless.”

He noted that, in this example, if the price of the underlying asset reaches $ 7,200, the buyer will pocket a net profit of $ 100 – a 100% return on investment (ROI). If the price of the underlying asset reaches $ 7,300, the buyer will have a net profit of $ 200, or a 200% ROI.

At the moment, Gong added that derivative instruments such as futures and options can prove to be a useful hedging tool, not only for retail and institutional investors but also for public mining companies that are facing strong economic pressure before Bitcoin Halving in May 2020.

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