Okcoin Guide

Okcoin's USD spot market is unremarkable apart from the lack of trading fees. You buy, you sell, nothing complicated about it. But Okcoin futures are the cheapest and highest volume financial instrument in the cryptocurrency scene by a long shot. Its the e-mini of crypto, so you have to get familiar with it. Okcoin futures have some unique quirks and a bit of a learning curve. If you're new to futures I recommending practicing and getting the hang of Okcoin before trying Bitmex, since Bitmex is a lot more advanced and complicated.

Trading Advantages of Leveraged Futures vs. Margin

Lower Fees: No interest payments since you're not borrowing anything. This multiplies the money available for trading by freeing up potential lenders to trade, resulting in significantly higher volume. These factors all synergize to allow the exchange to offer much more competitive fees. For comparison, the typical entry-tier trading fee on most spot exchanges is 0.2% to either buy or sell -- 0.4% overall. But on Okcoin's high volume leveraged futures, the trading fee is a mere 0.03% to open and costs nothing to close.

Liquidity: All that volume attracts big traders, who aren't necessarily interested in trading on leverage. Big traders tend to have issues with slippage -- their positions are so large it tends to move the market, penalizing their average entry price as their position size increases. They face the same problem again when they exit. With futures, the entire position, no matter how large, can be closed against the index price on the settlement date; no slippage, no fees.

Getting Started with Okcoin Futures

1. Use this okcoin link to start the registration process.

2. Once you jump through the verification hoops, deposit some Bitcoins (or wire USD) to trade.
Click Account -> Deposit -> BTC deposit, or just skip to this link if you get lost:  https://www.okcoin.com/account/rechargeBtc.do?symbol=0

3. Next you want to move funds from your spot account to your futures account:
Click the Transfer button on the top right of the page and transfer the correct amount.

4. Click on the Charts tab and head straight to Quarterly

5. For most people this is the command center; you have all the information on the index, the other futures, you can place orders, do some charting, view the orderbook, etc. You're locked and loaded, we just have to tweak some settings to compliment your trading style.

Tweaking the Settings

Go to the settings panel and choose these settings.

Currency and Units should be USD and Cont. Each contract is worth 100$. This part is not up for debate, its common sense so just set it that way.

Margin mode depends on your trading style.

Fixed: If you like to break your trades into small bullets, where getting margin called is the equivalent of a stop loss on your overall balance, choose fixed margin. You can only lose the amount in that trade, the rest of your funds are separate. Fixed is an easy way to limit your risk and is a must for 20x positions.

Cross: Cross margin is a little more advanced. With cross margin, your entire futures balance is in play (meaning you could lose everything). However, all your positions share their profits and losses, so you can do advanced trades like opening a long on weekly and an equivalent short on quarterly -- this allows you to profit if the quarterly premium over weekly narrows without being bull or bear.

For me, I choose cross margin because it allows me to have a different effective leverage than 10x or 20x. If I want to have a 5x effective leverage, I use half my available balance to buy 10x leverage contracts. Since funds are pooled on cross, it factors the other half of my balance into giving me the margin call that a 5x leverage position would have.

Max leverage also depends on your preference. It's important to remember that Okcoin margin calls 10x positions when losses hit -90% and 20x positions at -80%. You forfeit the remaining 10%/20% to the clawback insurance fund. 20x penalizes you more heavily when you get liquidated.

10x : The ideal choice for 99% of aspiring traders reading this. Just choose this one. In fact, most people should use cross margin and drive that effective leverage down much lower, like 4x.

20x : Choose this one if you're a degenerate gambler or can see into the future. Bitcoin tends to swing around 5% before pivoting in short term movements because there are dedicated teams of professional stop hunters who's job is to to margin call swarms of these people for easy profits.

The Mechanics and Specifications of Okcoin Futures 

What exactly am I trading?

This product belongs to a family of derivatives called non-linear inverse futures, pioneered by ICBIT in 2014 to avoid obstacles and fiat regulations by removing the need for USD to trade the BTC/USD pair. Its "inverse" because you are using Bitcoin to bet on the contract's price in USD, as opposed to using USD to bet on the price of Bitcoin. Its non-linear because the USD payoff is diminishing since you're being paid in BTC while its price changes.

In even simpler terms, you're betting on the price of Bitcoin using Bitcoin and the payoff is in Bitcoin. Payoffs from shorts are less profitable than longs for the same moves because the price of your payoff is changing. Still better than quanto futures. The full paper is here, nerds.

What are the mechanics of Okcoin's margin call/liquidation process?

  • Due to the Bitcoin's borderless and regulation-defying properties, its obviously not feasible to try to collect from traders who might accrue a negative balance from an unfilled margin call. Okcoin futures are set up so that individual can have a negative balance.
  • When the price of the contract  passes your margin call price and a countertrade happens that fails to push it back to safety, the margin call triggered.
  • For Bitcoin, 10x positions are liquidated at a 90% loss and 20x at 80%.The position is closed and the trader forfeits the remainder of the position to the clawback fund.
  • For Litecoin,10x positions are liquidated at 80% loss and 20x at 60%, making it completely untradeable and you should never ever trade this scam product.
  • Once liquidated, the position is taken over by the system to close as a limit order at the liquidation price. These orders appear bolded in the orderbook.
  • Follow @Whalecalls on twitter or check out the Liquidations List for filled and unfilled orders (given the adorable url name "blasting orders by Okcoin.
  • Any liquidation limit order that remains unfilled by the delivery date will have its losses socialized. First, the clawback insurance fund will be used to cover the losses, and if that is not enough, everyone who earned profit from that week will split a percentage of the loss.

How does delivery and settlement work?

  • Every Friday at 8am UTC the weekly contract expires (delivery) -- all gains and losses are applied and the market is closed. The other contracts just have settlement -- gains and losses are applied but positions remain open. The next week's contract becomes the new weekly, and the new next week is either created or rolled over from the quarterly depending on the calendar. 
  • The 3 hours leading into delivery is calculated by a rolling price average of the index to avoid manipulation by "banging the close". This is when someone with a large futures position pushes the spot/index price in their favor during the final calculation period. The other contracts apply gains and losses at the last price before settlement, which im sure someone with deep pockets will figure out how exploit eventually. 

What do the statistics in the BTC Futures Index tab mean?

  • Price Index shows the constituents and weightings used to determine the price for delivery calculations.
  • Open Futures Contracts are the only stats worth watching and can show you when big traders take positions or exit them.
  • Top Trader Setiment Index is totally bullshit, all the stats are calculated according to arbitrary rules that Okcoin doesn't share, so it can mean anything. Don't use the information, its generally misleading anyways.

Can you teach me some gimmicky tricks?

  • If you have a 10k+ contract position on cross margin, the market is moving rapidly against you but there is not enough liquidity to close without margin calling yourself, close as much as you can, and transfer as much of your balance to spot as possible before you get margin called.
  • During long periods of range-bound sideways, waiting to trade against bolded liquidation orders is generally a very high EV trade.
  • Okcoin plugged an strategy to avoid clawbacks by having opposing positions in different contracts; Clawbacks are applied to anyone who is in net profit across all contracts now.