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On Dec. 11th, FOTA.com a.k.a Futures & Options Trading Application, built by a team of directors, senior analysts and core members from Goldman Sachs, Credit Suisse, and the OCC, is officially online.
FOTA.com’s proprietary STAMP (System for Theoretical Analysis and Margin Portfolio) is the first and currently the only portfolio cross-margin system in the crypto industry. STAMP’s mechanisms and risk frameworks are designed to integrate those of the SPAN system of the CME and STANS of the OCC.
Designed to serve both retail and institutional investors, STAMP allows clients to
* maximize margin utilization rate (given specific risk tolerances),
* reduce the overall chance and/or impact of liquidations,
* withdraw or make use of realized & unrealized p&l 24*7,
* never incur negative margin and socialized loss.
More futures and options contracts are scheduled for the next few months.
40% of trade commissions will be shared to FOTA holders. Up to 50% of trade commissions from referred accounts will be given to the referrers. Referred accounts enjoy 10% off on trade commissions. If you would like to to be part of the “Influencers Program”, please contact us ([email protected]) for even higher bonus rates.
Futures vs. Perpetual Swaps
Futures contracts with expiration dates have intrinsic values since they will be settled, either physically or by cash. They do not need costly exogenous mechanisms to maintain their prices and control their basis (difference between futures prices and underlying prices). At the same time, futures allows investors to precisely hedge their underlying position in the dimension of time. The drawback of futures contracts vs perpetual contracts is that investors may have to roll over their positions.
Perpetual swaps can be held indefinitely as long as no liquidation occurs. The disadvantages of perpetual swaps are also obvious: they are never settled. Therefore, exogenous mechanisms such as funding fees must be used to limit the basis to a reasonable range. These mechanisms usually come with costs. Funding fees, for example, introduce another factor of stochasticity may incur additional costs.
Margin and Clearing System
With portfolio margin, the overall margin utilization rate is significantly higher than cross or isolated margin, given the same risk measures.
First of all unrealized profits can offset losses from all outstanding positions, no matter the contract type or the underlying asset. Since a diversified portfolio reduces the overall risk, portfolio margin also reduces the overall margin requirement thus increasing margin utilization. It also reduces the overall chance and impact of forced liquidations.
Both positions and orders may offset margin requirements of positions/orders on the opposite end, reducing unnecessary margin requirement. Offsets are calculated real-time based on price and other factors.
Liquidation & Risk Management
FOTA.com adopts a progressive liquidation mechanism. When a liquidation event is triggered, FOTA risk management system first cancels all active orders and then calculates which positions and how many of each of them shall be liquidated. Liquidation may or may not close all positions or the entirety of positions being liquidated.
Furthermore, while other exchanges retain users’ remaining margin after a liquidation, FOTA.com does not keep any remaining margin.
Auto-Deleverage (ADL) V.S. “Socialized Loss”
With “Socialized Loss”, for each contract, accounts with overall positive p&l share the total loss to the exchange incurred by negative margin at the end of each clearing period. The advantage of a socialized loss system lies in its simplicity, especially for fresh investors to understand. Its drawbacks include its reliance on clearing periods, thus eliminating the possibility of real-time clearing. e.g. Some exchange only lets clients withdraw profits after Friday’s clearing, meaning a client may have to wait 1 week in order to actually withdraw his/her profit. Also, socialized loss introduces another dimension of unpredictability, often significant enough to render may strategies ineffective.
With Auto-Deleverage (ADL), when a client is liquidated and the current market depth does not allow desired positions to be liquidated at the desired prices, the remaining positions will be closed with counterparties chosen by the system. More aggressive positions would have higher priorities of being deleveraged. Aggressiveness is measured by the account’s effective leverage and the positions pnl%. In other words, clients with very high risk and profit have a better chance to deleverage to prevent potential large draw-down.
The disadvantage of ADL is that it may take time for first-time users to understand. ADL’s major advantages compared to socialized loss include its compatibility with real-time clearing.
Furthermore, compared to one in a socialized loss world, a client in an ADL world
- receives real-time notification and can check deleverage details including ADL amount and price, instead of having to wait till the end of each clearing period to have any idea;
- can reopen the closed positions immediately after being deleveraged;
- is chosen to be deleveraged based on the risk and profit (aggressive) of a position rather than indifferently. Statistically, deleverage is likely to turn out favorable to the overall performance of the account deleveraged.