When it comes to crypto derivatives, BaseFEX is quite possibly the best currently available choice.
We keep hearing talking heads and regulators talk about BTC settled crypto futures, and how they are essential for the coming mass adoption. BaseFEX already has that angle covered. Its only shortcoming is that its services do not (yet) extend to the US.
Through this crypto futures exchange, users can trade BTC, BNB, HT and OKB perpetual contracts. The main selling point of the operation is not even the 1:100 leverage it offers on these instruments, though that is certainly outstanding as well. These perpetual contracts are BTC settled.
In this BaseFEX review, we take a look at the corporate background of this exchange. We have also put together a detailed guide for those interested in trading these derivatives.
What is BaseFEX?
As mentioned, BaseFEX is a rather unique service, focused on the provision of BTC settled crypto perpetuals.
The company behind the operation is based in Hong Kong. For regulatory purposes, it is registered in the Seychelles. Called Base Investing Corporation, its registration number is 205276.
The regulatory background of BaseFEX is a bit murky. It is not clear exactly what sort of financial services it can offer based on its status in the Seychelles. The exchange does not accept US traders, due to its lack of US regulation.
While there are probably scores of people involved in the project, the official BaseFEX site only sees it fit to list the names of the CTO and CEO. Issac Zeng and Jesse Wu fill these executive positions.
Since the exchange only accepts crypto deposits and since it settles its contracts in BTC, its somewhat shoddy regulatory standing is hardly surprising. While there are some exceptions in this regard, the majority of the world’s countries are yet to regulate the crypto industry.
Subscribe To Our Newsletter!
Want expert cryptocurrency knowledge and investment tips delivered straight to your inbox? Just enter your email below.
Furthermore, BaseFEX is a new kid on the crypto exchange block. As such, it has not had time to build up any sort of a reputation.
That said, it is obvious that security is one of the top concerns about BaseFEX. To allay such fears, the exchange allegedly keeps 100% of the funds it uses in cold storage wallets.
In addition to that, it also observes strict coin management protocols.
BaseFEX Risk Management
Leverage always equals increased profit potential and at the same time: increased risk. 1:100 leverage on cryptocurrency derivatives is quite outstanding. While it looks very impressive on paper, it exposes traders to massive risk, liquidity-wise.
To head off such risks, most futures exchanges use a liquidation engine. That’s exactly what BaseFEX has in place too, coupled with an insurance fund.
The liquidation engine eliminates positions that have outstretched the maintenance margin. On the other hand, the insurance fund covers positions that are liquidated too late.
The last component of the risk management system is an auto-deleveraging setup, which eliminates socialized losses, through the deleveraging of opposing positions when/where needed.
BaseFEX’s official site covers all this in great detail. Long story short: your balance cannot go below zero.
What is Futures trading?
Before we get to that, we should take a look at futures contracts and their peculiarities.
By definition, a futures contract is an agreement between two parties, concerning the buying or the selling of a specified commodity or financial instrument, at a set date, for a set price.
Although most futures trading is speculation-focused in nature, there is an actual real-world utility for these contracts. Through futures, farmers can for instance lock in a price for their wheat harvest, before they plant the crops.
This course of action offers commodity producers a degree of protection against the caprices of the market.
As mentioned however, most futures trading is cash settled, and does not involve the delivery of an actual commodity.
While BaseFEX’s futures offer fits that bill, instead of cash, it is crypto settled.
Futures trading is riskier than the trading of stocks, on account of the leverage involved. This is true in BaseFEX’s case too, which is why it is important to have proper risk management systems in place.
As mentioned, a futures contract is always an agreement between two parties: a buyer and a seller. Through its exchange platform, BaseFEX matches buyers and sellers.
The profits/losses resulting from these contracts depend on the daily price movements of the underlying asset. If you buy BTC/USD at $5,240 and it expires at $5,245, your profit at the end of the day is $5. You can increase your profits by buying more contracts and through leverage.
What You Absolutely Must Know About Futures Contracts
- The multiplier. You have to know the exact value of a single contract. At BaseFEX, the base currency is BTC. The value of a perpetual BTCUSD contract is 1 USD worth of Bitcoin.
- The mark price is determined through the Fair Price Marking method at BaseFEX. This price sets the Unrealized PNL and the Liquidation.
- Margins. The maintenance and the initial margin define the leverage you can use as well as the point of liquidation.
- Details regarding the settlement. When and how your contracts expire is of the essence. These details vary from one instrument to another. BaseFEX provides due information in this regard in its Contract Specifications sections.
- The basis determines the discount or premium at which the futures contracts trade, compared to the spot price of the underlying asset.
The Difference Between Futures Contracts and Perpetual Contracts
Futures contracts expire. What this means is that traders need to turn over their expired positions. While this entails certain costs, futures do not incur funding fees.
Perpetual contracts on the other hand – as their name suggests – do not expire. Instead, they pay or earn funding fees.
This contract type is better suited for traders looking to make use of leverage. Its obvious advantage is that it does not need to be turned over. The drawback is however that perpetual contracts lack transparency. Traders won’t know in advance what their potential funding profits/costs look like.
With futures, there are no such problems. The parties involved know the price in advance.
Perpetual contracts stay open until the trader closes them.
Be aware that perpetual contracts are the only contract type that BaseFEX currently supports.
According to the BaseFEX site, the exchange will add more products soon.
Margin and Leverage at BaseFEX
One more core concept you need to fully grasp before opening an account with BaseFX, is the concept of trading with borrowed money. That is after all, what margin and leverage really mean.
The minimum margin that BaseFEX can give you is 1% and the maximum available leverage is 1:100 on certain products.
Leverage can boost your profits, but it can do the same to your losses. At BaseFEX, due to the risk management protocols and systems that we detailed above, you do not run the risk of losing more than your account balance.
How To Create An Account At BaseFEX?
Registering an account with BaseFEX is refreshingly simple and quick. All you have to provide is an email address, a password, a nickname and the country where you reside.
Actual registration only takes a few seconds. An email is sent to the address supplied through the registration page, containing a verification code. Once you feed this code back into the registration loop, you are done.
The code expires relatively quickly, so make sure you enter it in due time.
How to Trade at BaseFEX?
BaseFEX is a no-nonsense service provider in regards to access to its exchange platforms.
It offers a testnet-based trading option as well as a live one. Both platforms are web-based. In fact, they are one and the same, with the same features and functionality.
We have found however that you need to create separate accounts for them to be able to access them. You will not be able to log into the testnet version with your live version login/password.
Think of the testnet platform as a sort of Demo account. You won’t receive free testnet Bitcoin by default however. Instead, you will have to acquire it from one of the testnet Bitcoin faucets listed at BaseFEX’s Deposit page.
Testnet Bitcoin carries no monetary value, so you will be able to put the platform to the test risk-free through it.
The faucet request only takes a few seconds. That said, the testnet Bitcoins take quite a bit to actually settle in your account balance.
Once you feel comfortable with the testnet platform, you are ready to move on to the real deal.
The BaseFEX Trading/Exchange Platform
The BaseFEX live platform is a simple yet highly functional trading solution. You can access it at a single click from the homepage of the official site. It displays everything pertaining to the trading activity on a single page.
The limited asset selection is on the left side, right next to the TradingView chart. As far as charting goes, this is a good choice on the part of the platform provider. Everyone knows TradingView charts and the TA-focused features are plentiful.
The interface also offers an Order Book as well as a listing of recent trades.
How do you actually trade?
There are two types of orders you can use: Market and Limit.
Through Market Orders, you will jump directly into the action. The system executes such orders immediately, at the best available price from the order book. There might be some slippage, so the execution price may differ slightly from what you believe it will be.
Limit Orders leave some more room for maneuvering. This order type allows you to set a price threshold. The system will only execute your order at that price, or better.
Fine Tuning Your Orders
BaseFEX gives you a few ways to tweak your order’s Time in Force as well. Good Till Cancel is obviously the default option here. Immediate or Cancel will trim all unfilled portions of your order, immediately after placement.
FoK (Fill or Kill) tells the system to execute your order completely and immediately, or if unable to do so, to cancel it entirely.
If you want to grab the Maker discount, click the Post Only Option. This way, you will keep your order from being executed against the market. If opportunities arise for its execution in the shape of resting orders, your order will be cancelled.
The Reduce Only option will only execute your order if it reduces your position. If it stands to increase it, the order is cancelled.
In addition to these fine tweaks, you can also adjust the leverage on your position. The Entry Price and the Liquidation Price are also displayed, together with your Return on Margin (always useful to know).
The Liquidation price acts as a sort of stop loss, killing your position if your mark price wanders above/below it, depending on whether you are Buying or Selling.
With all the variables filled in, all you need to do is to hit the Green (Buy) or Red (Sell) button to execute your order.
You can track your active orders as well as your order history at the bottom of the trading interface.
BaseFEX Deposits and Withdrawals
The exchange only accepts BTC deposits. Making such a deposit is a matter of a few clicks. The funds show up after just one confirmation.
The minimum required deposit is BTC 0.0001. Make sure you do not send LTC or BCH to the deposit address, as your funds will be lost.
Also, pay attention to what you’re doing with the testnet version. DO NOT deposit real BTC there, under any circumstances.
BaseFEX is a very reasonable crypto trading destination. Its fees are attractive. Makers do not pay any fees, Takers are charged 0.05% and the funding intervals are set to 8 hours on all available instruments. The exchange does not charge fees on funding received or paid.
Large volume traders receive additional discounts on commissions.
The trading platform is good. The reputation of the exchange is however quite non-existent, for the time being.