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FTX Opens Door to U.S. Derivatives Trading With New Acquisition

FTX Opens Door to U.S. Derivatives Trading With New Acquisition
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FTX.US hopes to make crypto derivatives trading more popular for Americans.

FTX.US announced this week that it will acquire LedgerX, a US-licensed crypto derivatives exchange. If the deal goes through, it will pave the way for FTX.US to expand its offering and allow US retail investors to access more derivative products.

FTX is currently the sixth largest cryptocurrency exchange in the world, according to CoinMarketCap data. It operates a separate website in America – FTX.US – to comply with US regulations. The range of products on FTX.US is limited when compared to its global counterpart.

What are cryptocurrency derivatives?

Derivatives are tradable contracts that allow investors to bet on whether the price will rise or fall, without actually owning the underlying asset. These are complex trading tools that are better suited for advanced traders.

For example, if you think that the price of Bitcoin (BTC) will increase from $47,000 to $48,000, you can enter into a contract to buy BTC at $48,000. If BTC really goes up, it will go up $1,000. Conversely, if you believe that Bitcoin will go down, you can use derivatives trading to sell it short and make money if the price goes down.

Another aspect of derivatives trading is leverage, which basically allows you to borrow money to multiply your winnings. In turn, you can also multiply any losses, which is one of the reasons why this type of trading is so dangerous. Let’s say you have $1000 to trade and you leverage that money 100 times to buy Bitcoin. You will be able to buy $100,000 worth of BTC and increase any profit a hundredfold. But, if the price of BTC drops by only 1% and you are about to lose more than your original investment of $1,000, you will lose all the money you placed.

According to research by Carnegie Mellon University CyLab, the trading volume of crypto derivatives is five times higher than regular trading. The report also warned that derivatives trading increased the overall market volatility and often resulted in significant losses for less experienced traders.

If you are considering trading derivatives or buying tokens with leverage, make sure you fully understand how they work and what the risks are. Investing in cryptocurrencies is already very risky, and derivatives can make it even more risky.

FTX.US treats regulators with caution

This deal will give FTX a greater foothold in the US market – and allow it to bring its expertise in international digital derivatives trading to the US, LedgerX is already regulated by the Commodity Futures Trading Commission for the sale of derivatives in the US

However, crypto derivatives have come under fire from regulators around the world. This is one of the reasons why FTX cut the amount of margin traders can access from 100x to 20x in July. The example above shows how 100x leverage means that investors can lose a lot of money with little price swings.

FTX Founder and CEO, Sam Bankman-Fried has repeatedly stressed the importance of working alongside regulators. Tell Market Insider Recently, the goal is to be “allies, not enemies of regulators”.

As the US authorities debate what form the increased regulation of cryptocurrency should take, this conciliatory approach may help. However, for US investors who want access to derivatives, much will depend on how FTX.US rolls out LedgerX products and how the regulation as a whole evolves.

Buy and sell cryptocurrencies on an exchange chosen by experts

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