7 Tips For Launching A Successful Cryptocurrency Derivatives Exchange

Author: Iskander Ziyanurov
06.09.2022

The global crypto industry has become one of the world's most lucrative ways to succeed and make remarkable profits. Even doubters can't dismiss how traders prosper in the financial markets by trading crypto instruments and making spectacular returns. Trading derivatives is a part of this. Since derivatives trading draws its value from a significant underlying asset, it is more adjustable and accessible, which attracts users. Likewise, leverage is frequently used in cryptocurrency derivatives markets.

Derivatives trading often determines the future prices of cryptos as well as stocks, commodities, and other assets. About one-fourth of the overall amount of cryptocurrency trading is conducted on exchanges that trade crypto derivatives. However, due to the volatility of the cryptocurrency market and insufficient liquidity, trading derivatives can be challenging and risky.

In this article, we will explain in more detail what crypto derivatives trading together with crypto derivatives exchange means. Also, we will focus on several solid tips for launching a successful cryptocurrency derivatives exchange.

What Is Crypto Derivatives Trading?

Derivatives trading is the exchange of contracts between buyers and sellers that obligates them to sell or buy an asset at a specific date. The derivatives used in the context of cryptocurrencies are futures, options, and perpetual swaps.

First, it is crucial to clarify derivatives to comprehend derivatives trading better. A derivative is an agreement between a buyer and a seller to exchange an underlying asset for a specified price. By agreeing to a contract that closes on the underlying bid price of, say, Bitcoin, or any other cryptocurrency, traders can hedge positions to minimize price fluctuations.

Worth noticing is that these are one of the oldest financial contracts currently in existence, as derivatives trading began to gain traction in the 1970s. Moreover, recent stories indicate that the public is becoming increasingly interested in trading cryptocurrency derivatives to protect themselves from market volatility. For instance, in May 2020, the monthly trading volume for crypto futures trading hit a record high of 602 billion US dollars.

Now, let's take a closer look at the main types of cryptocurrency derivatives tools.

Futures

Futures contracts are the most commonly recognized derivatives. They allow sellers to sell an asset at a specified price in the future and buyers to buy an asset where they agree upon a certain date. The majority of traders settle their profit or loss on their futures contracts before the contract is up. Usually, when trading in a risky market, which the crypto market certainly is, traders use a futures contract to protect other investments.

Options

The ability to buy or sell an underlying asset at a specific price at the expiration term is provided through options, which are yet another type of derivative. However, contracts for purchasing options do not include any responsibilities. Moreover, there are two categories of options contracts:

A call option: It provides buyers and sellers the right to settle on a price and time frame for the purchase of an asset.

A put option: It allows traders to concur on selling an item at a specific price and time.

When it's more clear what crypto derivatives are, let's take a closer look at the fundamentals behind crypto derivatives exchange.

What Is A Crypto Derivatives Exchange?

Such exchanges differ from others in that they deliver derivatives for cryptocurrencies which are implemented in the form of contracts that you can purchase or sell based on your expectations for the value of the underlying cryptocurrency. As already mentioned, this is how you can avoid holding the real crypto asset but rather protect your position against market volatility.

Even the top spot cryptocurrency exchanges that offer futures trading experience congestion problems and stagnant transaction times. To assure they never miss a lucrative trading opportunity, traders should go for a cryptocurrency derivatives-focused exchange for trading crypto futures.

Many cryptocurrency exchanges that began as spot exchanges have changed their trading platform to support derivatives trading. It is worth noticing that these are some of the largest cryptocurrency exchanges, but they do not offer the same level of security and accessibility to their derivatives traders. Because the sector differs fundamentally from spot trading, specialized crypto derivatives exchanges are needed to enhance trading services.

Moreover, like every serious crypto exchange, crypto derivatives exchange must provide features, among others, such as:

A) Security – Every business in the cryptocurrency industry must implement powerful security measures. Besides cold wallets, which are more reliable than hot exchange wallets, they should also include an extra layer of security, such as KYC and 2FA, and more.

B) Leverage – In crypto derivatives, leverage refers to borrowing money from an exchange to increase one's capital to profit more from price volatility. However, it's crucial to realize that trading with leverage involves immense risk and that the best risk management techniques must be used to prevent liquidation.

C) High frequency – Some exchanges prevent traders from selling their assets during volatile times. Since so many people are executing trades simultaneously, this is the main issue that is common to all exchanges. Dedicated cryptocurrency derivatives exchange with faster transaction speeds could be helpful in effectively resolving this problem.

Now that the theory is clear, let's proceed to the main subject of this article and analyze tips for starting a successful cryptocurrency derivatives exchange.

1. Do Your Research & Road Planning

There are various cryptocurrency exchange platforms for crypto trading. In our case, we have already taken the very first step and chosen to work with cryptocurrency derivatives trading.

Now, the next step you should take is to do proper market research and road planning.

As with other projects, you should conduct thorough market research, making you feel more confident and have a clear focus on what you want to reach. Conduct research to determine the present trends in the cryptocurrency market and the estimated value of cryptocurrencies in the upcoming years. You can use this information to choose, for example, which crypto coins or tokens to offer on your exchange. Additionally, learn what features traders look for in a cryptocurrency exchange. Then, start a cryptocurrency exchange by incorporating the most in-demand services. Consequently, you'll be able to increase your user base and revenue-generating prospects.

2. Implement Vital Crypto Exchange Components

The creation of cryptocurrency exchange software includes implementing several different components into the platform, including:

A) User Interface – A cryptocurrency exchange should have a precise design. It should be simple to comprehend and utilize in addition to being visually appealing. UI should be straightforward to attract users. Therefore, make it a priority since it is the first impression of your platform.

B) Matching engine – Such a tool is in charge of matching the buy and sell orders. A powerful matching engine can rapidly match the buy/sell orders and provide quick transactions. A robust matching engine will help you attract and keep more traders and boost revenues.

C) Liquidity – It is a critical factor influencing an asset's tendency to sell or purchase. Traders are more likely to visit your exchange if it has significant liquidity. You can increase your liquidity in many ways, allowing users access to numerous order books, adding extra payment channels, and listing alternative cryptocurrencies on your exchange. Trading bots are yet another method frequently utilized to attain high liquidity on an exchange.

D) Crypto wallet – Every crypto asset must be kept in a crypto wallet. A secure wallet must be connected with a crypto exchange to store and transfer cryptocurrency around the network. You should provide clients of your platform with a multi-currency wallet so they can keep all of their digital assets in one spot.

3. Establish A Team Of Experienced Professionals

As mentioned above, you must implement an efficient and dependable trading engine, safe crypto wallets, a usable interface, and provide enough liquidity during the development of the exchange. It is a challenging process where you might need a team of experts who will help you to develop your project.

Seek professionals who have a strong background in exchange creation. These experts always arrive prepared with specialized equipment and advanced software knowledge.

For those interested, you can always find a dedicated development specialist who will also share the excitement and the idea with other members of your development team. A loyal and enthusiastic team will never leave you alone, which will help in achieving success.

Establishing a solid long-term relationship is vital because your system will require maintenance and updates to keep running. Moreover, do not forget to make a budget to cover occasional costs and salaries.

4. Create A User-Friendly Platform

You have two options when starting a cryptocurrency exchange.

A) Start from scratch

Consider this option only if you have a well-experienced team and are prepared for a long, costly development process. Remember that this process can take at least one year and require a lot of resources and effort. Besides that, your project will also need an audit for safety and legal compliance.

B) Implement white label solution

You could also save time and start a cryptocurrency exchange business easier with this increasingly common choice. It will be less expensive to purchase a pre-made product than to build your platform from the ground up. A white label solution is a piece of universal software you may use to create your exchange. Choose the companies offering completed projects with care if you want a finished product that will satisfy all of your requirements and have no technical issues.

Therefore, firms that are struggling to find crucial components, such as crypto liquidity or the trading engine, for which there are no suitable alternatives, should pursue a white label solution. Another advantage of this strategy is the program's adaptability to special requirements and implementation of company branding.

5. Find Reliable Business Partners And Providers

Liquidity is a factor that drives the market. Because of that, you must find a strong and dependable liquidity provider. Currently, there are many businesses that give liquidity sourcing. They often provide a global LP network, a large variety of fiat money, and extensive order books. As you work on the development process, these businesses can connect to your exchange without additional effort or involvement from you.

Suppose you are building your exchange from the ground up. In that case, you will want to research and thoroughly vet any liquidity source to ensure it meets your specific currency needs and is reliable and not susceptible to outages or security issues.

If you want to use a white label, you already know the advantages. Considering the fact that clients seriously examine the liquidity while choosing which business they will use, implementing a white label cryptocurrency exchange will help them to profit from the pooled liquidity supplied by the software provider.

6. Fundraising

Many starting firms deal with this dilemma when it comes to capital allocation. It seems that venture capital would surround you if your business idea is innovative and exciting and has the potential for significant future growth. Whether you require a venture capitalist to back your business investment is entirely up to you. There is a chance that you may launch an exchange with little money out of pocket if you find a solid investor.

But remember that sufficient capital is required for every serious brokerage. Initial capital may also come from your savings or close friends. Remember, before going public and seeking investors, be 100% sure you have your research and roadmap done so that you can present it to those who might eventually put their money into your project.

7. Marketing & PR

No one will know about your project if you don't share that you are starting a cryptocurrency exchange. To pick up steam and attract consumers, you must advertise your exchange to the appropriate target market. You can get marketing assistance from the white label business that helped you to develop your crypto exchange. Their skilled marketing staff can create clever marketing plans to promote your exchange. Use multi-channel marketing to increase and widen your audience.

You can market your exchange using the following advertising strategies. Each has its own specifics and requirements:

  • Content marketing

  • Social media marketing (Facebook, Instagram, LinkedIn, etc.)

  • Pay Per Click (PPC)

  • Cooperate with the top crypto news sites and blogs

  • Share it on forums (Reddit, Quora)

Conclusion

Cryptocurrency derivatives offer many opportunities to make money in the crypto market. But, without a proper planning approach to using crypto derivatives, users will experience challenging times. Trading derivatives involves a variety of risks, so a trader should evaluate and understand them before making an initial trade.

When you are ready to start a cryptocurrency exchange business, follow all of the crucial steps. Trading platforms for cryptocurrencies are becoming extremely popular in the business world, and a significant number of startups and entrepreneurs have made their initial investments in crypto firms, either as a second income or as their primary business. Thus, the time is ripe for you to launch your cryptocurrency exchange business by implementing the processes mentioned above. Also, consider white label solutions, which can significantly help your business grow by saving a lot of capital and time.

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