FTX.com has made a name for itself in recent months. Its extensive range of trading products, brand new features, and a smooth sleek trading experience has enticed many traders to sign up for the exchange.
Due to the stringent nature of US financial regulation US users can not sign up for FTX.com and so FTX.US was born. But can it live up to reputation that FTX.com set? Keep reading and find out.
FTX was originally founded and launched by Sam-Bankman Fried and Gary Wang in 2019. Both founders graduated from MIT. Sam progressed on to join Jane Street a quantitative trading firm based on Wall Street. While Gary became a software engineer at Google aggregating prices for their Google flights service.
Their combined knowledge in both pricing systems and quantitative trading is what brought them both into the cryptocurrency realm. In the midst of the 2017 bull run they founded their own quantitative trading firm known as Alameda Research which set out to employ quantitative trading methods in the cryptocurrency market. This firm grew to become one of the largest trading firms in the cryptocurrency market. Currently Alameda does over $600 million in trading a day.
In an interview with Venture Coinist Sam outlined that it was the launch of Alameda Research which triggered their inspiration to launch their own cryptocurrency exchange. Subsequently launching FTX.com.
It was from the launch of FTX.com that FTX.us arrived. Hoping to take market share from already established US exchanges.
Safety, Security, and Regulation
Like most other exchanges FTX has support for standard Google 2 factor authentication (2FA). 2FA enables users to add an extra layer of protection to their account. When you login with 2FA enabled you will be asked to enter a 6 digit pin generated on the Google Authenticator App. This ensures that even if your accounts email and password to FTX is compromised your accounts funds will still remain secure.
FTX also has support for withdrawal passwords. When this setting is enabled users will be asked to enter an additional password if they wish to withdraw funds. Again adding an additional layer of security to your funds.
Since launch FTX has not had a breach in either customer funds or data.
FTX uses cold storage to ensure the safety of user funds. Cold storage is where the keys to coins are kept offline which in theory can prevent hackers getting access. A smaller portion of coins are kept in a hot wallet which facilitates day to day transactions such as withdrawals.
Before signing up to an exchange platform stability is always something to keep in mind. Nobody wants to trade on a platform that is going offline. It can cost traders time and money.
FTX’s platform stability has been overall very good. The platform had some minor teething issues when starting out but these have largely been resolved.
On what has been coined Black Thursday where on March 12th Bitcoin crashed by over 50%, FTX, along with every other major exchange had issues with downtime. FTX went temporarily offline for spots throughout the day and had other issues where orders were not going through. However overall it did better than average on perhaps the biggest stress test in crypto history.
KYC and AML
FTX’s KYC system is similar to that of other US based exchanges. There are 4 levels of KYC. By providing more documentation you increase your KYC level and unlock extra features. For example, increased withdrawal limits.
When you first create an account on FTX.us you will be at level 0. At this level you will have a have a life time withdrawal limit of 10,000$.
To get to level 1 you must submit basic information such as your name, state, and address. You do not have to provide any official documents at this level. By doing this you will gain the ability to withdraw up to 10,000$ a day as well as get to use ACH bank deposits.
To get to level 2 you have to provide a picture of your passport, as well as a selfie of you holding your passport.
Finally to get to level 3 you have to complete all previous levels as well as provide proof of address and a bank statement. This will remove any withdrawal limits, you will gain full wire transfers, and essentially full access to what the platform has to offer.
Completing the KYC is straightforward once you have the relative documentation at hand. Simply navigate to the KYC tab within settings. Once your application has been submitted FTX staff will review your application within 24 hours.
Currently FTX.US does not accept users from the states of New York or Washington
FTX.US has done the utmost to be regulatory friendly with US financial lawmakers. This exchange has been built from the ground up to essentially be just that: A US based exchange so I am confident that it will stay on the good side of US financial regulations.
This does come up at cost when compared to FTX.com but we will address this later.
Trading fees on FTX.us are tiered based on how much you trade. So the more you trade the less you will pay in fees as a percentage. Below is a table of the full fee schedule.
30 Day Volume (USD)
Withdrawal and Deposit Fees
FTX does not charge for deposits or withdrawals with cryptocurrency. FIAT deposits made via ACH transfers also do not incur any fees.
When using wire transfers there is a 1% fee up to a maximum fee of 35$ and a minimum fee of 5$.
FTX Fees in Comparison to the Competition
Due to the tiered nature of FTX’s fee schedule it is hard to make a direct comparison to that of other exchanges as the fees you pay are based off your trading volume. For simplicity in the table below we will assume tier 0.
As you can see from the table above one of FTX.US’ main competitors is charging much lower fees than them. At the first tier Binance.US’ taker fees are 0.3% cheaper.
One interesting point is how much more expensive fees are on FTX.US than FTX.com. The maker fee is 0.08% more expensive and the taker fee is 0.33% more. However as you go up in 30 day trading volume the fees become rather similar.
CEO Sam Bankman-Fried went on Twitter to state that this was due to the increased cost of business within the US.
Markets and Standout Features
Perhaps the largest discrepancy between FTX.com and FTX.US are the unique features and variety of markets. FTX.us is completely stripped down when compared to its sister site.
Currently there are only 6 available cryptocurrencies on the platform. BTC, ETH, BCH, LTC, PAXG, and USDT. Wiht both a USD and USDT pair. This is compared to FTX.com which has over 100 markets.
But some might say that comparing it to an exchange operating outside of the US is unfair which is true. However, if we compare it to Binance.US it still comes out well below par, with Binance.US having 3x more tradeable markets.
In terms of features on FTX.US there are very few. On FTX.com there is leveraged tokens, options trading, prediction markets, and Quant Zone. However, on FTX.US none of these are present.
However that is not to say that it is all poor for FTX.US. They’re offering up to 10x leverage on a US based exchange, they have a solid mobile app for trading on the go, and it is easy to get orders filled. The fundamentals are definitely present.
Stringent US regulatory policy may be what is holding the exchange back. We have seen this with other US based exchanges where they are incredibly reluctant to launch new markets due to the fear of catching the eye of regulators.
FTX’s move into the US market is a positive for the cryptocurrency market. The more competition the better off the consumer. Increased cryptocurrency business within the US may also encourage regulators to loosen the financial regulation surrounding cryptocurrency.
However, in FTX.US’ current state there is not much that would entice me to sign up to the platform. Other US based platforms currently have a clear advantage. Both in terms of fees and platform features.
That is not to say that FTX.US’ current state will be all that it amounts to. The exchange is brand new, there is still huge room for improvement and the FTX team have already demonstrated their ability to create a great platform once. Why could they not do the same again?
FTX has made waves within the cryptocurrency industry in recent months. Its vast array of products and features in combination with its deep liquidity have enticed many cryptocurrency traders to sign up for the platform.
In this article we hope to answer the question; is FTX the best up and coming exchange? And if so should you sign up for it?
In this review of FTX we will assess the exchange based on 4 key criteria. Safety, Security, and Regulation. Trading Fees. Markets and Standout Features, and finally Ease of Use. We will conclude by giving our conclusion and score rating.
You can use the contents table below to navigate to the section most relevant to you.
Founded by Sam Bankman-Fried and Gary Wang. FTX launched in 2019. Both founders graduated from MIT. Sam progressed on to join a quantitative trading firm known as Jane Street. While Gary became a software engineer at Google aggregating prices for their Google Flights service.
Their combined knowledge in both pricing systems and quantitative trading is what brought them both into the cryptocurrency realm. In the midst of the 2017 bull run they founded their own quantitative trading firm known as Alameda Research which set out to employ quantitative trading methods in the cryptocurrency market. This firm grew to become one of the largest trading firms in the crypto market. Currently doing over $600 million in volume a day.
In an interview with Venture Coinist Sam outlined that it was the launch of Alameda Research which triggered their inspiration to launch their own cryptocurrency exchange. Citing that trying to use these other exchanges was frustrating and tiresome and they thought they could bring something much better to the cryptocurrency market.
Safety, Security, and Regulation
FTX has industry standard support for Google 2 factor authentication (2FA). 2FA enables users to add an extra layer of security to their account. After entering both their email and password users are asked to enter a 6 digit randomly generated pin from the Google Authenticator app. This ensures that should a bad actor have access to both your email and password he will still not be able to gain access to coins stored on the exchange. 2FA is compulsory on FTX.
FTX also supports additional withdrawal passwords which require users to enter an additional password to withdraw. This password is different from the one users use to log and adds an additional layer of security.
One feature which is absent on FTX but present on other exchanges is the ability to whitelist certain IP addresses. So you can only login from a certain IP. However this is not a deal breaker and may be only useful to a small percentage of users.
Since its foundation FTX has not had a breach in either customer funds or data.
FTX uses cold storage to ensure the safety of user funds. Cold storage means that the keys to the coins stored in FTX wallets is kept offline away from potential hackers. A smaller fraction is then kept in what are called hot wallets which are connected to the internet. These hot wallets facilitate day to day transactions on the exchange such as withdrawals.
The stability of FTX has overall been very good. The platform had a few teething issues when first starting out however these have been largely ironed out. The platform like its competitors still goes down occasionally but these are rare.
KYC and AML
FTX’s KYC policy is similar to other platforms and easy to understand. There are four levels of KYC. You increase your KYC level by providing more verification and documents. By increasing your KYC level you will be allowed greater withdrawal limits, and the ability to deposit FIAT currency and buy Bitcoin directly through the exchange.
When you first register, create your account, and confirm your email you will be at level 0. This level gives you a lifetime withdrawal limit of up to 1000$. You will be unable to withdraw more once you reach this cap.
Level 1 requires you to provide your name, country of residence and your local province. FTX do not ask for documents at this level. At level 1 you gain the ability to withdraw up to 2500$ a day. However, if you trade more than the sum of all your deposits and withdrawals you can withdraw up to 9000$ a day.
Level 2 requires you to provide your full legal name, date of birth, proof of address, the source of your assets, passport or other government ID, and a picture of yourself holding your ID with the date and a piece of paper with ‘FTX’ written on it. Once completed you are allowed unlimited crypto withdrawals.
Finally, to complete level 3 you need to finish all previous levels and to now provide a recent proof of address and, to provide a recent bank statement. Once this is done you gain the ability to wire money to FTX and buy crypto directly on their FIAT markets.
FTX.com does not currently accept users residing in the US. However the newly launched FTX.US does.
FTX is registered under FTX Trading LTD which is incorporated in Antigua and Barbuda. The registering of FTX here may raise some red flags to some but this practice is common in the cryptocurrency industry and some might say is necessary in order for an exchange to succeed. Strict regulatory guidelines in larger jurisdictions such as the US and EU make it almost impossible for exchanges to operate well and so a large percentage of companies register where financial regulation is more relaxed.
However there may still be some regulatory uncertainty’s with the platform. Earlier this year FTX launched a market which US regulatory boards may not approve of. The market in question is FTX’s crude oil futures market.
Back in 2018 the CTFC which regulates commodity trading in the US sued a cryptocurrency CFD platform which enabled users to trade oil and gold with Bitcoin. The domain was also seized by the FBI.
FTX has strict warnings that prohibit users trading oil if they are from a prohibited country. So I doubt the same faith awaits them as 1Broker but it is worth keeping in mind.
Trading fees on FTX are tiered based on on how much you trade. The more you trade the less your trading fees will be. For example if you trade less than $1 million in 30 days your taker fee will be 0.07% while if you trade more than $1 million your taker fee will be 0.06%
See the table below for the full fee list. Maker fees represent what an order would cost if you used limit orders to fill your order. While the taker fee represents the fee if you used a market order.
30 Day Volume (USD)
FTX also has their own exchange token known as FTT. Holders of this token also get fee reductions based on how much tokens they hold. See the table below for the full benefit of holding these tokens.
FTT Holding (USD)
Discount on FTX Fees
Become tier 4
Become VIP 2
FTX has a number of atypical trading products such as their leveraged tokens. We will address these products later in our review. These leveraged tokens have a creation and redemption fee of 0.10% and a daily management fee of 0.03%.
Using leverage of over 50x increases trading fees by 0.02%. Using leverage over 100x increases trading fees by 0.03%. These additional fees are paid to the insurance fund rather than FTX. Adding directly to the insurance fund is done to prevent socialized losses like what happened with margin trading on OKex in 2018.
Another factor to consider when using a platform is deposit and withdrawal fees. On FTX there are no fees for depositing or withdrawing money. If you decide to withdraw Bitcoin you will only have to pay network fees.
FTX Fees in Comparison to the Competition
Due to the tiered nature of FTX’s fee structure it is harder to make a direct comparison to another exchange which has a flat fee. But if we assume the lowest fee tier of less than 1m$ in trading volume FTX fees are by and large more expensive than those of their main competitor, BitMEX. However, If you trade more than $1 million in thirty days your fees will be lower than the example provided here.
BitMEX has a flat fee regardless of trading volume of -0.025% for maker and 0.075% for taker. The negative maker fee means you will receive a rebate for adding liquidity. This is considerably better than FTX’s 0.02% fee. The taker fee on FTX however is lower by 0.005%.
The justification FTX makes for its higher fees is that if you widen the spread between maker and taker fees you will inevitably widen the spread between the bid and ask in the order book. They state that market makers will shift their positions to compensate for the spread in maker-taker. In summary you will either pay the fee in the spread on the exchange or in the fee charged.
FTX does want to incentivize people to provide liquidity–doing so means taking the risk that prices will move against your order. But we want to make sure that we don’t make markets artificially wide, which is why our maker – taker spread is significantly lower than many of our competitors.
Similarly both BitMEX and FTX charge no fees for withdrawals or deposits.
Markets and Standout Features
FTX has the widest variety of trading pairs perhaps out of any derivatives exchange in crypto. Currently having over 50 trading pairs. Each of these trading pairs typically has both a perpetual swap contract, variety of futures contracts and a spot market where you can trade directly in US dollars.
In comparison to BitMEX which only has 8 trading pairs FTX is streets ahead.
Not only does FTX have a wide variety of pairs it also has unique products which are not available anywhere else. One of these products are leveraged tokens.
These leveraged tokens give exposure to certain cryptocurrencies with leverage of up to 3x to the upside or downside.
FTX gives three potential reasons as to why using leveraged tokens might be better than simply using leverage to buy or sell an asset:
The first reason is that leverage tokens make it easier to manage risk. Leveraged tokens give traders the opportunity to use leverage without paying too much attention to managing leveraged positions. This is because the leveraged tokens manage leverage themselves without the need for trader input. FTX gives the example below.
BULL/BEAR/HEDGE tokens will automatically reinvest profits into the underlying asset; so if your leveraged token position makes money, the tokens will automatically put on 3x leveraged positions with that.
Conversely, BULL/BEAR/HEDGE tokens will automatically reduce risk if they lose money. If you put on a 3x long ETH position and over the course of a month ETH falls 33%, your position will be liquidated and you will have nothing left. But if you instead buy ETHBULL, the leveraged token will automatically sell off some of its ETH as markets go down–likely avoiding liquidation so that it still has assets left even after a 33% down move.
The second reason is managing margin. Leveraged tokens will manage their own margin. You can simply buy $10000 of BTCBULL which gives you exposure to 30000$ of Bitcoin. If price sharply declines 33% chances are you might be liquidated, but your maximum loss can not exceed 10000$ and you did not have to worry about your liquidation price or collateral.
Leveraged tokens have gone to zero before where the automated system which maintains them could not catch up with an extremely sharp decline in price. But this is rare as the automated system typically can begin to sell off exposure before liquidation.
The final reason given by FTX as to why using leveraged tokens is beneficial is that they are ERC-20 tokens based off the Ethereum blockchain. This makes them transferable too. So you can keep them off the exchange in an Ethereum Wallet for example. It brings up an interesting use case where you could keep 30000$ of a Bitcoin long in an Ethereum wallet.
There are leveraged tokens for every market on FTX.
Alongside all the variety of tradeable markets on the exchange there are a number of cryptocurrency indexes curated by FTX themselves.
Some examples of these indexes are their EXCH-PERP, PRIV-PERP, and ALT-PERP. The EXCH-PERP is an index of exchange tokens such as Binances BNB, Huobi Token, and Bitfinexes LEO token and others. The PRIV-PERP is a basket of 9 different privacy coins like Monero, Komodo, and Zcoin. While their ALT-PERP is an index of a number of high ranking altcoins.
These index products are incredibly convenient for traders and investors who are bullish on certain sub sections of the cryptocurrency market to gain exposure. For example if I am an investor who is bullish on privacy coins I can gain exposure to all of them in one market rather than have to buy and manage them all separately.
The demand for more complex derivatives in crypto has increased over the past few years and FTX is helping to fill that demand with its options markets.
Users can request quotes directly through the options market tab. Here users can request quotes for calls and puts or make bids on other users requests for calls and puts. There is also a convenient graph on how profit and loss for a chosen option will work.
Alternatively users can trade FTX’s volatility markets. There are currently 3 main types of volatility contracts. MOVE contracts, BVOL, and IBVOL.
Move markets for those familliar with options trading are essentially call straddles. This is a type of options trade where you buy a put option (betting price will fall) and buy a call option (betting price will go up). The result is that traders will profit from a volatile move in price as long as the move is sharp.
Move contracts work somewhat similarly where they will expire to the absolute value of the change in the price of BTC over a specific time period. That time period varies based on what move contract you choose. There are move contracts for the day, the next day, the week, and all the way up to a few months away.
There are also BVOL and IBVOL. Both are erc-20 tokens similar to leveraged tokens however they either track 1 times the the implied volatility of Bitcoin (BVOL). Or, -1 times the implied volatility of Bitcoin (IBVOL). Implied volatility is a metric which tracks the markets view of a change in an assets price.
Exotic Crypto and Non-Crypto Markets
If the previous trading markets were not enough FTX has also began to list markets which you might have not even considered. One of these is its new hashrate futures market.
Just launched before the recent halving, hashrate futures allow traders to long or short what they believe Bitcoins hashrate will be at a specific date. There are a variety of futures expiring from 6 months away to 18 months.
The futures contracts expire to the average difficulty value of blocks mined divided by 1 billion.
These contracts can be useful for pure speculation. Or miners can use them to hedge. The market is in its infancy so it will be interesting to see how traders use them to their advantage.
FTX has also began to dabble in non-crypto markets. One of these non-crypto markets we have mentioned earlier and its FTX’s crude oil market. Previously we have discussed it in regard to its potential regulatory risk. However if you are in a jurisdiction in which trading crude oil on FTX is allowed it may be worth dabbling it.
Gold also has a market on FTX through its Tether gold perpetuals. Tether Gold (XAUT) is similar to USDT in that it is simply a token which is backed by a real world asset. In USDT’s case a dollar, in XAUT’s case an ounce of gold.
Traders can trade the price of gold through XAUT the same as they would on a traditional financial exchange. It being a token backed by gold also means that it is free of the regulation that FTX’s oil market is shrouded in. If you’re allowed sign up to FTX you can trade XAUT.
FTX has also began experimenting with prediction markets, launching for the 2020 American Presidential Campaign. Here traders can bet on who they believe will be elected.
Each presidential candidate has a market which varies between 0$ and 1$. If the candidate wins the contract expires at 1$ while if they lose it expires at 0$. The variance between 0$ and 1$ in valuation represents what traders feel the probability of a certain candidate being elected is.
If you’re informed on US politics you can imagine how the valuation of some candidates has gone.
FTX has also set its self aside from its competition by doing regular large scale trading competitions. These competitions often have large prize pools making them incredibly competitive.
As an example the current competition titled ‘Man vs Machine’ puts regular traders against quantitative traders to decide who is best. Regular traders must trade through the platform while quantitative traders must trade through the API or Quant Zone.
There are individual prizes top traders on both teams as well as team prizes for the winners.
For those with an interest in programming or quantitative trading you may want to look into Quant Zone. FTX’s attempt at trying to make quantitative trading easier.
Quant Zone allows you to create trading algorithms directly on the platform, without the need for API’s. Within the Quant Zone interface users can create trading rules and actions. These trading rules and actions can then make up your very own quantitative trading strategy.
Your trading strategy can be as simple as shorting Bitcoin when it is over 10000$ or you can create something much more refined and sharp.
This is what is available now but in future iterations FTX plans to launch a number of new features. One said feature is the ability to create your own trading program and then share it with other users. When these traders then use your program you will earn a portion of their fees.
FTX has both an app for Apple and Android devices so users can monitor and manage trades on the go.
The app is not the most intuitive mobile experience but it does what it needs to do.
Liquidity is perhaps the most important force behind whether an exchange will be successful or not. Having no liquidity creates a sort of exchange death spiral. If you have no liquidity you will not attract users to sign up, and if you have no users you won’t attract liquidity. You can have the best trading platform in the world, but if you have no liquidity its nothing but a tech demo.
FTX however never fell into the liquidity death spiral that many other smaller exchanges fall into. From the get go FTX had the advantage of coming from Alameda Research, one of the largest liquidity contributors in the cryptocurrency industry. On day 1 the exchange had great liquidity.
Not only were Alameda providing liquidity but so too were other liquidity providers. FTX went out of their way to recruit other liquidity providers and trading firms in the crypto space.
Liquidity on FTX still remains very strong. On larger pairs such as Bitcoin and Ethereum you will typically have no problems with getting orders filled. Volume on FTX is typically lower than other large exchanges such as BitMEX and Binance but this is unlikely to negatively affect you unless you trade very large sizes.
As you go from Bitcoin and Ethereum down to the smaller altcoins volume begins to decline but this is the case with every exchange. However, again if you plan on trading altcoins with large size you may want to keep it in mind.
Ease of Use
The trading experience on FTX is much like that of any other derivatives exchange. If you have used other platforms like BitMEX you will be right at home.
Even if FTX is your first experience with cryptocurrency trading it is all largely intuitive.
You can search through the markets in the markets tab and select the one you want to trade or alternatively you can use the search bar.
Once you have found the market you want to trade you can place orders using the orders box. Here you can select what price you want to buy or sell the asset at, what order type you want to use, and how much of the asset you want to buy or sell.
Once you have placed an order it will appear in your open orders tab at the bottom. It will give you the details of the order you just placed as well as how much of your order has been filled.
Once your order has been filled in your positions tab it will show you details like profit and loss, estimated liquidation price, and the notional size of your order.
One thing to keep in mind which might be different from previous trading platforms is that FTX only supports cross leverage. Cross leverage is contrasted against isolated leverage. Isolated leverage is what most people are use to and is the easier to understand. With isolated leverage if you get liquidated on a trade you will only lose the amount you put into that trade. So if you bought 10000$ worth of Bitcoin with 10x leverage you have put up 1000$ in margin. If Bitcoin falls 10% your position will be automatically liquidated and you will lose your 1000$.
However with cross leverage the assets of your whole account are used as margin. This typically means that you are less likely to get liquidated but when you do get liquidated assets in your wallet will be liquidated as well.
If you want to use isolated leverage on FTX there is a work around by creating a sub-account. Simply create a sub-account then transfer the maximum you want to risk into the sub-account from your main account. If you get liquidated in this case only your sub-account’s assets will be liquidated and the assets in your main account will remain untouched.
Perhaps my largest albeit a relatively minor issue with FTX is its UX. From the home page there is drop down menus, hover menus, all directing you to an infinitude of different things. If I weren’t involved in crypto I wouldn’t even think based on the home page that it was a trading site.
If we compare it to BitMEX when you first login you’re immediately presented with a trading terminal, you can see price charts, trades taking place, markets, your orders and your positions. You immediately know you are in an environment where something to do with trading is taking place.
While when you first login to FTX you’re at minimum 2 clicks away from even getting a glimpse of a trading interface.
User interface is not the greatest concern when signing up for an exchange. FTX is still excellent once you get used to it. However, if FTX worked on crafting a good UI and UX it would make a great exchange even better.
Now that we have assessed FTX on all of our criteria we can finally give out conclusion and final score.
FTX although only starting to make its first trades just over a year ago has made massive leap forwards. In terms of the sheer number of features and markets on offer it is leagues ahead of the competition. No other derivatives exchange offers options trading, leveraged tokens, Quant Zone, prediction markets, a vast array of indices, spot markets, and trading competitions all in one package.
There are slight issues with regulation. Having an oil futures market puts them on the radar of regulators when they don’t necessarily need to be.
In terms of KYC and AML leniency FTX is not the best but it is not the worst either. On the plus side you can begin trading without having to submit any form of documentation. Once you confirm your name and country of residence you can withdraw 2000$ a day which is good. However, in comparison Bitmex, the largest exchange has no withdrawal limits with no identity verification.
KYC on FTX may be due to its spot FIAT markets which allow you to wire money to the exchange, but for some that benefit may not outweigh the drawbacks.
The user interface is also an issue we brought up however this is not exchange breaking issue and is something that FTX can fix in future iterations.
To conclude, we posed two questions at the start of our review. Is FTX the best up and coming exchange? And is it worth signing up for? To answer simply the answer to both questions is yes.
This review contains affiliate links. By using them you will receive a 5% discount on your fees. You will also help support our website. Although we receive commission through our affiliate links we remain as objective and honest as possible when reviewing. FTX did not contact or send us money to conduct this review.
The term quantitative trading strikes fear into the heart of many a trader. Quantitative trading firms are almost seem as the boogeymen of the trading world. They are rather sarcastically blamed for being the people to blame when you lose a trade or get stopped out. This reputation is partially due to the air of mystique surrounding quantitative trading. A lot of their operations are rather secretive and only insiders are aware of them. So, this bring us to the question; Alameda Research, who are they? And what do they do?
A lot of people first encounter the name Alameda Research when scrolling through the rather infamous BitMEX leaderboard. Currently they hold 2 spots. Netting over 7000BTC in profit. And this is just from accounts they have chosen to display. Alameda in recent times have been starting to give insight not only into how a quantitative trading firm operates, but also the new found institutional presence in the cryptocurrency industry.
The Birth of Alameda Research
Alameda was first founded during the famous bull run of 2017 by Sam Bankman-Fried and Gary Wang. Sam previously worked for Jane Street. A quantitative trading firm on Wall Street. While Gary previously worked for Google as a software engineer.
They currently manage over 100 million dollars in assets. Trading between 600 million and 1.2 billion dollars everyday across a variety of crypto assets such as spot Bitcoin, altcoins and crypto derivatives. Making them one of the largest liquidity providers in the cryptocurrency industry.
Alameda Research Trades over $600 Million in Cryptocurrency Everyday
Alameda makes the majority of its money from quantitative trading. However they have diversified into other areas such as creating their own over the counter trading desk and recently launching their own exchange FTX.
The CEO Sam Bankman-Fried goes into detail on how he got started in the cryptocurrency industry in an insightful interview with Venture Coinist.
The first thing that struck me was just how inefficient it (referring to the cryptocurrency industry) was
Interview with Venture Coinist
To understand what he means by this this we must first understand a key component of quantitative trading. Market inefficiencies. Market inefficiencies can be very loosely defined as a situation where the current prices do not reflect all the publicly available demand and supply information, due to negligence or breakdown of buyer-seller communications.
This is best shown in terms of crypto by means of an example. In the run up to the Bitcoin bullrun top of 20000$ there were incredibly large price discrepancies between exchanges. One exchange may have quoted 19000$ per BTC while on another exchange 16000$ per BTC was quoted. If one were to short Bitcoin on the exchange quoting the price of 19000$ and buy Bitcoin on the exchange quoting 16000$ one could make a profit of 3000$ (19000$ – 16000$ = 3000$) risk free. This is one among many examples of a market inefficiency commonly known as arbitraging.
Alameda exploits inefficiencies similar to this on a daily basis (Though not as extreme). Alameda recently uploaded a video to their YouTube channel from a live trading session in which they talked through how they traded a large seller on Binance who created a 2% price discrepancy across exchanges. Creating a perfect arbitrage opportunity.
Alameda also engages in the nitty-gritty of what quantitative trading is most known for. Its large programming and mathematical basis for trading. Alameda like most other firms is quite secretive in regards to these quantitative models. Divulging very little details on how they are formulated. On their website they are intentionally vague simply state they employ “medium term quantitative strategies” such as “mean reversion” and “machine learning”. These terms reveal practically nothing.
However, who can blame them for being secretive? Quantitative models can make millions of dollars. But if the strategy’s leave the four walls of the trading firm the models become null and void, and practically worthless. Secrecy is an essential element of these models.
The Challenges Presented by Cryptocurrency Infrastructure
In Sam’s interview with Venture Coinist he also goes in depth on how cryptocurrency infrastructure as a whole presents challenges to quantitative firms due to its decentralized nature.
One of the key pieces there that makes these sort of opportunities exist but hard to take advantage of is in Finance its not that you can move Apple stock from one exchange to another instantly. It’s that you don’t have to because you just have centralized clearing firms.
Interview with Venture Coinist
Later in the interview he also discusses how the variance in exchanges and lack of co-ordination and standardization between them opens up quite a few problems for Alameda.
For example, one exchange may have a completely different way of interacting with trading programs (Through API’s) than another. While some may be limited in what they can do at all. Not only does he criticize exchanges and their API set-up but also their infrastructure as a whole. Making reference to the infamous order submission errors which are common on BitMEX which prevents trades going through. But also mentioning poor quality exchange matching engines, as well as the way bankruptcy’s are handled while on margin.
The Creation of the FTX Exchange
These issues are what motivated the team at Alameda to create their own exchange called FTX. Which they feel is done the right way for all party’s.
FTX is a cryptocurrency derivatives exchange built by traders, for traders. We strive to build a platform powerful enough for professional trading firms and intuitive enough for first-time users.
FTX has put a lot of time and effort into developing infrastructure so they don’t suffer the same problems like the ones highlighted previously. They have developed a more advanced liquidation engine to prevent claw backs, as well as working on platform stability and there matching engine.
Not only has FTX worked on doing the basics well they are also the exchange that is leading the way in terms of product innovation. From the launch of the exchange FTX has listed a whole host of new trading products. These include brand new leveraged tokens, perpetuals swap contracts on a range of coins, new tradeable indices such as altcoin indices, and a privacy coin index among others. These allow you to trade the altcoin or privacy coin market as a whole. FTX has also joined the list of cryptocurrency exchanges to offer options trading.
FTX has also worked on creating brand new features. These include things like Quant Zone which allow users to create their own quantitative trading programs, and a variety of trading competitions for traders to take part in.
In conclusion I feel that as a whole Alameda Research represent a rather changing cryptocurrency space. Their presence as a whole may be a net benefit. Increasing liquidity and market efficiency are good for the space and will further drive an increase of institutional on boarding. Although many retail traders may feel justifiably put off and even fearful by the ever many might see it as a necessary step forward.