Getting started with Deribit — A cryptocurrency leveraged trading guide
Deribit is a Bitcoin and Ethereum derivatives trading platform operating since the summer of 2016, located in Netherlands. Deribit offers Futures and Options for both — Bitcoin and Ethereum. Deribit does not handle fiat currencies meaning that all transactions are made in Bitcoin or Ethereum.
Why should one use Deribit?
You have probably heard of different cryptocurrency exchanges like Binance, Kraken or Coinbase. Deribit differs from those exchanges by offering highly leveraged trading (up to 100x for Bitcoin and 50x for Ethereum). If you are not familiar with leveraged/margin trading, then I recommend reading this article.
There are also other margin trading platforms available for cryptocurrencies (biggest of which BitMEX). Deribit has three big advantages over BitMEX — first, it has clearer and more beautiful user interface (by far).
Secondly, if you have used BitMEX you might have noticed that during big pumps and dumps (with high volume), there are always problems inserting or cancelling orders (system overload). This might result in major loss or you could miss on taking high profits. I have never faced the problem on Deribit.
Deribit’s third advantage over most platforms is the availability of subaccounts. You can make as much subaccounts as you like to keep separate positions in separate accounts. Transfers between accounts are instant. Subaccounts are useful for managing losses or in some cases having both short and long positions open at the same time. It could not be done in one account, because margin trading platforms only allow one open positions for a trading pair.
To open a subaccount navigate to “Subaccounts” tab in the setting panel.
How to use Deribit?
If you have ever used BitMEX then it should be easy for you to adapt to Deribit, since the platforms are similar in logic. I will provide a easy to follow tutorial for Deribit.
Opening an order
Deribit lets you open orders by entering quantity of contracts or by entering quantity in Bitcoin. Quantity of contracts must always be multiple of 10 and one contract worth is exactly $1.
Deribit offers 4 order types — Limit, Market, Stop Market and Stop Limit. This is not ideal, but at least it has all the basics. In my opinion, Deribit is missing one order type — Trailing stop, that is offered by most other platforms. This has probably not been added in regards to possible performance issues (remember system overload on BitMEX).
Market orders
The difference between limit and market orders are fees — while having to pay taker fee of 0.075% with market order, you actually receive a rebate of 0.025% with limit order. Market order quarantees that your position is opened and therefore it is more expensice (also you might get a slippage). To save 10% off fees for 6 month, register by using this link.
Limit orders
Limit orders have many options that are convinient and help to reduce human errors. First, Time in Force, decides when should the order be cancelled. Default option is GTC (Good Till Cancel), which is never automatically cancelled. Second option FOK (Fill or Kill), cancels the order when it is not immediately and completely filled. Last option IOC (Immediate or Cancel) is similar to FOK, the only difference being that it must not be completely filled.
Second option, Post (Post Only Order), makes sure that your Limit order is not filled as a Market order. What I love about Post Only Orders on Deribit, is that the price is adjusted if necessary and your order is always inserted, unlike on most platforms where it just could not be entered if the price has already moved in opposite direction. For example if you want to go long @10,152 and the minimum bid is $10,140, then your order is submitted to orderbook @10,140.
The last options I would like to discuss is Reduce (Reduce Only Order), that is triggered only for reducing your position and not for opening or adding to position. This is useful for Take-profit orders.
Stop orders
Stop orders on Deribit have same options as regular Limit and Market orders. Only difference is that instead of Price these have trigger price. Deribit allows to set trigger as Last Price, Mark Price or Index Price.
Leverage
Deribit uses cross leverage (100x for Bitcoin and 50x for Ethereum) only, meaning that your position is always leveraged 100x and additional margin is paid from you balance. For that reason you should always use a stop-loss or your whole account might get liquidated.
Editing orders
When Limit or Stop order has been entered you could edit it by navigating to “open orders” or “stops” tab and then clicking edit on the order you want to edit. By doing so a modal opens. Change the desired parameters and click “Edit Order”. Now, your order ha been edited.
What is a liquidation price?
Simply put, liquidation price is a price that you cannot cross or otherwise your position is lost (on Deribit the whole account). For longs liquidation price is always lower than entry price and for shorts higher. Estimated liquidation price is always shown before opening a position. The actual formula for calculating liquidation price is rather complicated and not essential knowledge for trading on Deribit.
For calculating liquidations conveniently I recommend using this calculator.
Positions
When your first order is filled, you have opened a position. You can see your open positions in the “Positions” tab. It provides a nice overview about the positions and lets you close the position if needed.
Also in the top section of the page overview about open positions of both Bitcoin and Ethereum is provided.
The most important aspect about positions, is of course profit. I will not explain the formulas for calculating profits. Don’t worry, those are rather easy to understand. If you are curious about those calculations, I recommend reading this article.
To calculate profit conveniently I recommend using this calculator. And for more advanced positions, with more than one entries or targets I recommend this tool.
Options
Most of the information above was about Future contracts but Deribit offers Options as well. Options on Deribit are so calle European style cash settled options. Options divide into two sides call and put Options.
A call option is the right to buy 1 unit of commodity at a certain price at the time of expiration. This price is sometimes called the strike price. A put option is the right to sell 1 unit of commodity at a strike price at the time of expiration.
For example, if you buy a put option with strike price of $10,000 for 0.1 BTC, then you have a right to sell 1 BTC for $10,000. Now lets say that the price of Bitcoin is $7800 at the expiration, then the option will settle with a value of $2,200, which is equal to $2,200/$7800 = 0.282 BTC, so you are credited with 0.282 BTC, since your initial purchase price was 0.1 BTC, you have earned 0.282–0.1 = 0.182BTC.
Conclusion
Deribit is a great leveraged trading platform for cryptocurrencies with clear, beautiful and easy to use user interface. I would prefer it to BitMEX because of its performance, but on the other hand the volume is much lower (around 10 times or even more). That might make it tricky to trade really big positions.
Also if you would like me to write more about Deribit or BitMEX let me know in the comments. Meanwhile feel free to read my other posts about margin trading cryptos.
