Phemex: The Institutional Grade Derivatives Exchange for Crypto
Full Disclosure: This is not a sponsored article, this is an article to help educate on the benefits of margin trading, specifically through Phemex.
If you find this article helpful, we encourage you use our link to sign up for a Phemex account by clicking our link here
Our you can just visit Phemex at www.phemex.trade
Introduction
The aim of this article is to give you a quick overview of the following:
What is Phemex?
Phemex is a relatively new Bitcoin and altcoin futures exchange, with a core focus on institutional grade speed and security, that offers leveraged trading of BTC/USD, ETH/USD, XRP/USD, LINK/USD, XTZ/USD, LTC/USD, and for the first time on a crypto exchange GOLD/USD.
The exchange is based out of Singapore and joined the crypto market this past year under Phemex Limited, a company founded by former finance and blockchain executives from Morgan Stanley. The exchange offers a hierarchical deterministic cold storage wallet and state of the art security.
Jack Tao, Phemex CEO and Founder, has even stated that “security and the safety of our clients funds is the top priority.”
“ security and the safety of our clients funds is the top priority.”
Phemex’s focus on security along with their unmatched throughput of 300,000 TPS (transactions per second), they are likely to surpass all current available options as the leader for leveraged derivatives trading.
(Something that many traders may appreciate is the fact that Phemex is a completely anonymous exchange. There is no KYC required before you can trade and no need for a VPN. This is great for those privacy hawks who are worried about the risks of data breaches.)
Lets talk about margin trading with leverage.
When you trade on futures exchanges you are not trading actual bitcoin, you are trading “delta one”, or the derivative associated with the underlying spot commodity and use your bitcoin as the collateral.
Leverage- and benefits
Leverage is the increased purchasing power that is acquired through using a margin account, which is expressed via a ratio between the amount of capital you currently have and the amount that you can employ in any given trade
Essentially, by using leverage you can trade a large value by using a small amount of our capital.
With leverage, you can trade a large value by using a small amount of capital
1- Mitigate for counterparty risk
Counterparty risk is the risk associated with one of the parties involved in a financial transaction, and in the case of crypto this was a once more common problem in the form of exchange hacks.
One of the key benefits of using leverage, especially with cryptocurrency is to mitigate for counterparty risk. The use of leverage allows us to keep most of our crypto stored in a off exchange wallet, while using a portion of it on exchange to represent what might be our greater off exchange amount.
Think of it this way, if you have 1 BTC in a wallet, you can deposit 1/10 of that onto a leveraged futures exchange, turn up the leverage to 10x and trade as if you were using 1 whole Bitcoin. The use of high leverage is not advised but this is a clean example.
You can deposit 1/10 of that onto a leveraged futures exchange, turn up the leverage to 10x and trade as if you were using 1 whole Bitcoin.
2- Greater capital efficiency and greater exposure
By effectively using a small amount of capital to control a larger position, leverage helps us achieve greater capital efficiency, which is essentially being more efficient at successfully employing the limited capital we have. We can reduce the amount of capital that is used for individual trades in order to take on more positions and therefor gain more market exposure.
3- Everyone’s favorite- Increasing leverage on individual trades to reap large rewards.
A trader who uses Phemex exchange can potentially deposit 1 Bitcoin to control 100 BTC. In a bull market that is trending up on strength, just adding 3–5X leverage can drastically increase your long term performance. Think of the spot price of Bitcoin. If you own 1 Bitcoin at 10,000$ and it goes up 1,000$ you make just that. If you are using leverage on that amount, that increase would be multipled by however much leverage you applied.
just adding 3–5X leverage can drastically increase your long term performance.
Risk Management
As a reminder though, leverage works in the opposite direction as well, and not exercising proper risk management can break a trader.
Leverage when used with proper risk management can be a game changer, without it and you will quickly ruin an account. This often comes in the form of over-leveraging which will lead to liquidation.
To open a leveraged position you must deposit an initial margin amount in order to maintain this position. On Phemex, you can deposit any amount up to 1 BTC to control up to 100 BTC. If your position experiences an adverse excursion that causes the position margin requirement to not be met, your position will be liquidated.
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(Luckily on Phemex, you don’t have to expose your whole account as margin and risk liquidating your entire account. Instead you can use the isolated margin feature to limit specific margin to specific trades)
Leverage Amount (1x to 100x)
Phemex offers up to 100x leverage, this can be accessed using the leverage slider bar or manually typing in a specific leverage amount to the desired decimal place.
Each time you place a leveraged trade your liquidation amount will be listed, it is crucial that you understand just how close these get on the higher leverages.
100x Leverage in a long you will be liquidated if price moves down roughly 1%.
25x leverage it would be roughly 4%
10x it would be roughly 10%
While 100x your gains sounds exciting it can become dangerous especially when dealing in extremely volatile markets. You should be aware of current market conditions always when considering the use of certain leverage. If the market currently has a high average range relative to the norm, or an increase in volatility beyond the normal standard deviation of price movement, you would be foolish to use high leverage.
Remember
There is a minor funding fee typically for those who are trading with the majority in terms of overall position directions. (longs or shorts) This fee % is on the notional value of the trade. Theoretically if price moves sideways long enough your trade will be liquidated, though this is more common on spot exchanges that offer margin and leverage at higher interest rates.
Always use a Phemex MARKET stop. In the case of high leverage using a market stop is imperative to guarantee that we are 100% exited from a trade. The possibility of using a limit stop and the price moving right through our exit without getting us out of the trade is too great of a risk to bear.
Slippage with a sure exit is better than being liquidated.
Depending on the position sizing and risk management of the individual trader, typically higher leverage requires use of tighter stops. If we are using lower leverage this allows us to use wider stops.
Acknowledging this we must recognize that our strategy, trading style and market conditions must afford us this to begin with.
Trend following in a market that has a wide daily range might not afford us the use of high leverage unless we catch a perfect entry with no movement against us beyond that point. The stop should be well before the liquidation point and a market that is trending with a wide range will need some room to breathe.
Why Trade on Phemex?
From a technical standpoint, no other exchange even comes close to Phemex’s matching engine speed. At 300,000 TPS (transactions-per-second)with 1 millisecond latency. Phemex is the far superior alternative to Bitmex and Deribit, who clock in at a slow 500 TPS and 5000 TPS respectively.
Phemex is even three times faster than Bybit thanks to the Phemex team who have expertise in building high throughput, low latency, large scale algorithm trading platforms.
Phemex is the fastest exchange in crypto markets
Benefits of using Phemex
- NO SYSTEM OVERLOAD
That’s right, in a community full of Bitmex memes in regard to system overload, Phemex is able to accommodate your order in even the most hostile conditions (think volatility and high volume surges). One of the main detractors from using Bitmex was that sometimes your order request would not be able to be satisfied which can leave you left out, or left in, a trade at the wrong time.
The typical overload message only on Bitmex
2. TAKE-PROFIT AND STOP-LOSS ORDERS COMBINED
Phemex allows you to place a trade with both a target and a stop in place, all at once. Rather than have to go through these steps individually, Phemex simplifies this entire process. When entering into a trade the last thing you need to be doing is setting up all of these triggers separately, while leaving a trade open and your position exposed. Even in that short span of time the market can easily switch directions.
3. EXPERIENCED TEAM FROM TRADITIONAL FINANCE
What do you get when you take the leader of development for Morgan Stanley Electronic Trading and seven other team members who have expertise in building high throughput, low latency, large scale algorithm trading platforms and give them the ability to build a crypto derivatives exchange?
You get Phemex.
As with everything, start small, get comfortable, and remain disciplined. When you have a system that is showing promise head over to Phemex and benefit from the features of the exchange, and the added benefits of proper use of leverage.
4. OPEN SUB-ACCOUNTS (HAVE BOTH LONG/SHORT POSITIONS)
On most exchanges, you can only be in one position: either long or short. In order to hedge your long position with short position you’d have to register multiple accounts on Bitmex but with Phemex sub-accounts you can fund multiple sub-accounts under one main account.
5. TRADE GOLD AND OTHER ASSETS
Unlike other exchanges where you can only trade crypto assets, on Phemex you can now trade GOLD/USD to as a hedge for your trades.
Gold has been a very hot asset to trade over the past year with the disrupt in the global economy. In the coming weeks, there will be additional assets added including other commodities and stocks.
As always, exercise proper risk management, and trade effectively.
Be on the lookout for more tips and education on margin trading in the future
