Recently Kraken, a popular cryptocurrency exchange, launched a futures trading platform. Their new futures contracts include short term and a perpetual contracts. Crypto traders will be familiar with their perpetual contract as its similar to those traded on Deribit and Bitmex.
The Kraken & Deribit perpetual contracts are virtually the same, and therefore trade at almost identical prices. Their virtual fungibility should probably also help keep them both liquid since market makers can arb each contract against the odds. Both contracts are cash settled. Kraken’s futures use the CME CF Reference Rates as their index. Kraken now owns Crypto Facilities, which also supports the CME reference rates (the “CF” stands for Crypto Facilities). The Deribit contracts settle off a similar index (which is set by Deribit) but which uses similar sources to construct their index. You can visit both company’s websites to find the details of they way they construct their indexes. The only other thing to say about index construction is that I would prefer a 3rd party index provider to reduce potential conflicts of interest (this favors Kraken over Deribit).
The perpetual contracts trade very close to spot. But they essentially settle each day and in some cases several times each day, so a funding rate is either paid or received by open interest depending on whether there is a premium or discount on the contract each period. Please examine the contract specs closely and make sure you understand the funding mechanism before trading these contracts.
Deribit Perpetual Futures Contract Specs
Kraken Perpetual Futures Contract Specs
BitMex Perpetual Futures Contract Specs
Calculating a profit or loss is pretty easy, you simply take the number of contracts you’re short or long multiplied by [(1/Entry Price) – (1/Exit Price)]. For example, if you are long 10 contracts at 3000 and you sell them at 4000, then your profit = 10 * [(1/3000) – (1/4000)] = 0.0008 btc. Since all of these futures contracts are priced in btc, that why we have to calculate profit in a bit of a convoluted way.
Which contracts are the best? It depends on what you’re trying to do. Deribit offers 100x leverage, so either this gives you more speculative leverage, or allows you to put up less capital to hedge, but the Kraken platform is better for users who want to link their fiat money to crypto. With Kraken you can verify your account and this will allow you to use fiat to crypto. But if you want to remain anonymous, then you’re better off using Deribit, because they don’t need to know who you are. With Kraken you get some regulatory oversight, this might reduce some of the credit risk associated with keeping money on an exchange.
Deribit also has options listed, so if you might need this extra functionality, then Deribit might be a better venue. I also like how Deribit has a rudimentary affiliate system, this might encourage greater exchange liquidity. Although Kraken offers discounts to orders that provide liquidity.
