Singapore-based Huobi is the latest crypto exchange to launch perpetual swaps. The new product is live on Huobi DM, the company’s derivative trading platform.
New Product Allows Traders to Benefit from Market Volatility
BitMex-like future contracts with no expiry times, commonly referred to as perpetual swaps, are becoming increasingly popular among crypto exchange firms. Last year, Binance and OKEx introduced perpetual swaps, and now it’s time for Huobi to join the trend.
Huobi DM already provides crypto derivatives, including Bitcoin futures with contract expiration of weekly, bi-weekly, and quarterly periods.
Now the platform offers perpetual swaps. These derivatives allow traders to get exposure to Bitcoin without actually owning it. The product is similar to a futures contract that mimics the cryptocurrency’s spot price, but it has no expiry or settlement. Usually, platforms exchange payments between buyers and seller every 8 hours.
According to Huobi DM, perpetual swaps represent “a new derivative product that enables users to better hedge risk and create leveraged arbitrage opportunities in volatile market conditions.”
Ciara Sun, Huobi Group’s VP of Global Business unit, explained:
As we’ve recently experienced, sudden market swings can have a significant yet temporary impact on the broader financial ecosystem, but volatility itself is a very normal part of market cycle. Perpetual swaps provide traders another tool in their arsenal to capitalize on market movements to create arbitrage.
Huobi’s Perpetual Swaps Support x125 Leverage
It’s likely that Huobi monitored how other exchanges behaved and implemented the best practices from its own perspective. Particularly, the derivative platform allows a maximum leverage figure of up to 125, as in the case of Binance. This suggests that traders’ initial deposit for a position can be boosted by 125 times in order to maximize potential profits. However, the risk of loss is much higher as well, which is why most experts warn that such instruments should be allowed for institutional and professional investors only.
Elsewhere, BitMex and OKEx’s maximum leverage is 100x. When Binance first announced its maximum leverage figure, it received a lot of criticism.
However, Huobi claims that it offers some key risk management features to minimize risk, including the partial liquidation mechanism and liquidation circuit breaker. The former gradually reduces a user’s position rather than liquidating it in full in a single event. The liquidation circuit breaker is used in abnormal market conditions when the platform detects extreme deviations between the liquidation and market prices.
Perpetual swaps have been on our roadmap for quite some time, but we wanted to ensure we had the right risk controls in place before we made it available to users, Sun explained.
Initially, Huobi supports BTC swaps only, but it will add ETH, EOS, and LTC soon.
Recently, Bitcoinist reported that Huobi would compensate traders who lost fund because of the system failure during the crypto market crash.
Do you think Huobi’s maximum leverage is too high? Share your thoughts in the comments section!
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