ABCC, a cryptocurrency exchange with trading volume in excess of USD 10 million per day, will soon launch Bitcoin options trading. This new feature will allow traders to bet on whether the price of Bitcoin will rise or fall during a day. Currently, options trading on ABCC is in beta testing but should be made available to the public within about a week.
Call and put options are available, where call means that a trader is betting Bitcoin’s price will be higher at the end of a contract than at the beginning, and put means the trader is betting that Bitcoin’s price will be lower at the end of a contract than at the beginning. Contracts start and expire each day at 16:00 UTC, and there will be USDT and ABCC Token (AT) trading pairs for Bitcoin.
When a call option expires, and the bet is successful, the seller will deliver 1 USDT or 1 AT to the buyer for each contract. An example of how this would work is two traders, A and B, who each hold 100 AT and no contracts. If A and B agree on a contract price of 0.4 AT, then A pays 40 AT for 100 contracts, and B earns 40 AT for the 100 contracts. Essentially, the options markets on ABCC are powered by traders making peer-to-peer deals. The contract price determines the leverage.
If the call is successful, meaning Bitcoin’s price increases, then A will be paid 100 AT, leaving A with total profits of 60 AT. Since B has to pay out 100 AT, they will incur losses of 60 AT. A lower contract price means A earns more and B loses more, if the call is successful.
In the scenario where the buyer loses a bet, the seller of the contract keeps the profit from selling the contracts. The put option works about the same, the difference being it is successful if Bitcoin declines, the opposite of a call.
Major cryptocurrency derivatives exchanges like BitMEX have 100x leverage on short and long positions, but ABCC exceeds that since price of contracts is accurate to 0.0001 AT or USDT. At the minimum possible contract price, A would pay 0.01 AT for 100 contracts but would earn 100 AT if the bet is successful. This means the maximum leverage on ABCC is 10,000x, which equates to 1,000,000% profits. This creates exciting possibilities for traders who take risky bets and succeed.
Further, the exchange can offer this 10,000x leverage safely since options trading is peer to peer, and ABCC itself is not the one lending money or contracts for these trades. It merely takes a 0.5% fee. Additionally, contract sellers must lock the appropriate amount of AT or USDT in escrow, to ensure buyers will be paid.
Beyond this, ABCC will be releasing stop loss functionality on their regular cryptocurrency exchange by the end of November 2018, and will be revamping their website soon to provide a more optimal user experience.
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