Paradigm, an institutional, over-the-counter investment firm, is now offering a feature that allows users to trade futures spreads as a single structure using a central limit order book.
The new “futures spread orderbooks” are now live on the crypto exchanges Deribit and Bybit, according to a tweet from Singapore-based Paradigm. Videos posted on the company’s website show how the trades are executed.
A futures spread trade is an arbitrage technique where a trader takes two positions on a commodity to capitalize on a discrepancy in price. So a trader buys one futures contract and sells another with a different expiry date. Instead of trading the price of the underlying asset – in this case, bitcoin or another cryptocurrency – based on the investor’s view of the future direction of the market, traders bet on the price difference between the two contracts.
Futures spread trading is considered less risky when compared with futures contracts, according to the CME, a U.S. commodities exchange.
However, there are still some risks associated with futures spread trading, especially when using high leverage, according to Cryptarbitrage, a Twitter user who says he creates content for Deribit Insights and has experience trading derivatives in crypto and traditional markets.
Cryptoarbitrage spoke to CoinDesk via a Telegram chat after being contacted via a Twitter direct message. He declined to disclose his identity.
“This new order book makes it easier and gives traders the ability to leave limit orders,” Cryptarbitrage told CoinDesk. “They are no longer restricted to either accepting or not accepting a dealer’s quotes. They can now set their own price.”
“This should be useful for traders who want to trade the spreads themselves, but also very handy for traders rolling their positions from one contract to the next,” he added.
