Understanding the differences is key. Not only will it help you be more successful in the market. You will also know what kind of trading experience you are going to get from a certain platform and why. And those experiences are very practical ones: from what price your order is executed at to whether you are going to get liquidated when you least expect it.
This post is not about CEX.IO Broker fees, which, by the way, are very competitive compared to other platforms. Yet, fees are a business decision of each platform, and you certainly need to know how fees work before using it.
Here, we’ll go through the fundamental differences between CEX.IO Broker and platforms like Binance Futures and BitMEX: from the mechanics of the financial instrument you trade to the setup of certain functions. Reading this post will give you a much deeper appreciation of the crypto derivative markets. And you’ll know why and when you will benefit from choosing CEX.IO Broker as your margin trading platform over other platforms available.
The Financial Instrument
The foundational difference between CEX.IO Broker and the platforms like BitMEX and Binance Futures is the financial instrument, which trading is based on. For CEX.IO Broker, it is CFD, contracts for difference. For those other two platforms – those are perpetual futures.
Though you are probably already familiar with contracts for difference from our other articles (Like this Definitive Guide on Trading CFDs), it’s worth refreshing the basics.
Contracts for Difference are the financial instruments that let you trade in price differences of assets without you owning, buying, or selling those assets. You open positions expecting the price to go up or down. And your profit (or loss) is determined by whether you turned out to be correct.
Binance Futures and BitMEX are based on something called perpetual futures. Perpetual futures are somewhat of an invention of the cryptocurrency industry. But essentially, they are futures without an expiration date. So, similar to contracts for difference, your profit and loss are both determined by whether the difference between the prices you’ve bought and sold the futures contract is in your favor.
🧐 So, hmm, if both contracts for difference and perpetual futures 1) have no expiration and 2) their profit is determined in a similar way, what’s the difference?
Here’s where fun begins!
Yet, there is a big (HUGE, GIGANTIC!!) difference in how those instruments work in the context of the market overall.
You see, we’ve been highlighting a lot how CEX.IO Broker works with the liquidity providers. Those liquidity providers are big exchanges (the names you know well). And we need those liquidity providers to rout your orders to and execute them.
In the finance world, such a process is called STP (Straight Through Processing) and ECN (Electronic Communication Network).
What those terms mean is that CEX.IO Broker simply performs the role of the intermediary for you. Your orders are fulfilled on the spot market at the best price it can offer, so-called “Best Price Guarantee.”
The Best Price Guarantee means the Broker will offer you the best price it can execute your order on the market, given the market conditions.
So the prices you see in quotations in CEX.IO Broker reflect the current state of aggregated liquidity on those markets where CEX.IO Broker can fulfill your order. In other words, given the available liquidity on all those big exchanges, what is the best price your order can be executed at? That’s your price.
And why is that important?
Because it means your contracts for difference (with CEX.IO Broker) are closely connected to the spot market.
It is not the case with perpetual futures.
How Contracts for Difference are executed on CEX.IO Broker
When you buy or sell a futures contract, you do not know who those buyers or sellers are. And the price of your contract is based on the supply and demand of futures contracts on that particular market (platform).
How Futures Contracts are executed on BitMEX or Binance Futures
And that’s how price forms in the platforms with perpetual futures. Of course, to keep that market “in check”, the spot market price of the asset, informs the prices of the futures contracts.
And the platforms implement (often complex and scenario-based) calculations where index prices, composed of the spot prices on several exchanges, affect the determination of profits and losses or liquidations. So the tie with the spot price in the perpetual futures market exists, but it is much looser than with contracts for difference.
And, as the recent history shows, there have been events (like already proverbial March 13th, 2020) when the extreme volatility caused pretty sizable gaps between the spot prices and the last trade prices in the futures markets.
In other words, you would see one price of the asset on the spot market and a significantly different price on the futures market. In the meantime, there was no such gap between the spot price and the price on CEX.IO Broker.
Check out the image👇! The price between the futures and the spot market differed by a few hundred dollars at that time! Such events often feature the cascades of liquidations on those platforms. And that’s the outcome of futures market mechanics not being closely connected to the spot market.
Few hundred dollars gap between the spot market and the futures market during high volatility
Executed with liquidity providers, contracts for difference are closely connected to the spot market and increase market liquidity.
Executed on the spot market by the broker, Contracts for Difference affect the liquidity of the spot market. The prices of contracts for difference are formed by the aggregation of available liquidity. In this setup, the prices always trail the spot prices.
Futures are traded between buyers and sellers of futures contracts. There is no spot execution attached to a cash-settled perpetual futures contract. Futures do not directly increase the liquidity of the spot market. And the price of the futures is largely formed by the supply and demand on the futures market itself. How the spot price affects the futures market price is often built into the calculations and scenario-based approaches developed by the very platform. Hence, the gaps between the prices on the spot and the futures markets become possible.
In practice, it means that futures can pose more uncertainty to profits and losses and liquidations compared to contracts for difference, especially in the volatile times. And, since volatility is a frequent guest in cryptocurrency, you need to understand what, in these conditions, you can (and cannot) expect, working with a particular platform.
There is one more crucial difference between CEX.IO Broker and futures platforms stemming from the difference in the financial instrument. But we’ll get to later, to keep the intrigue (because it’s a good one!🤓) once we go through the differences in the setup of the platforms’ functionalities.
Now you understand that contracts for difference and perpetual futures are very different beasts by nature. Yet both instruments can be successfully used to achieve your trading goals. And, if we do not think about high volatility times when the difference between contracts for difference and perpetual futures shows the most, are there other things that set the platforms apart?
If both bakeries make good bagels on the most days and only on super-busy days one bakery can potentially let you down – should you care? That’s when you choose how the bakery can serve your needs: do they have coffee, do they take custom orders, are they open the hours you need? You get the idea…And everyone chooses what fits them most.
Similarly, there are things that you can do on CEX.IO Broker, which are hard or impossible to accomplish with other platforms. In our view, they can significantly improve your trading experience whether you are a novice or a professional trader.
What are those things?
✅ Multiple Segregated Positions
Say you trade a BTC/USD pair and you open a position at a certain price. A few minutes later, you see that the entry price improved more and you have a high conviction in the trend. So you want to open another position to average out your entry price.
All three platforms, BitMEX, Binance Futures, and CEX.IO Broker allow you to open more positions in one pair.
But there is an important nuance:
In BitMEX and Binance Futures, your position will be shown as netted. In other words, all your BTC/USD positions will be combined in one, resulting position, given the entry parameters for all the positions it is composed of.
In CEX.IO Broker, it is different. Every time you enter a new position, each position is shown separately, and so are its results while it’s open.
Such a setup of showing multiple positions instead of an aggregated one-liner in CEX.IO Broker makes it very convenient to deploy various trading strategies. For example, when you have multiple entry and exit points, you see every position in front of you, instead of holding them in your head.
It becomes even more interesting because, with CEX.IO Broker, you can hold two opposite positions at the same time. For example, you can long and short Bitcoin simultaneously.
In futures platforms, if you attempt to go long and short at the same time, those contracts will close each other out. The only way to accomplish it is to have two separate user accounts (and find a way to trick the system for it!).
Longs and shorts at the same time sound great. But why in the world would you do that? 🤔
Probably a matter of a separate post, but here’s a brief intro:
Holding a long and a short with different Stop Loss and Take Profit parameters allows you to establish hedged positions. In these positions, if the price moves in the desired direction beyond a certain level, you make a profit, if it does anything else (moves against you, stays in place, moves a little) – your losses are offset by your gains.
With these positions, executed right, you either have zero or make a profit, while you are hedged from a loss. Quite neat!
✅ Multiple Trading Accounts
With CEX.IO Broker, you can trade on multiple trading accounts within one user account. Such function is not available in places like BitMEX or Binance Futures.
We went into a lot of details about the benefits of having multiple trading accounts in the previous article (Check it out!). In the nutshell, multiple trading accounts allow you to successfully execute separate trading strategies with different parameters.
In practice, we’ve seen traders use separate trading accounts on CEX.IO Broker to split out different trades by nature and by style:
- Short duration trades vs long-duration trades;
- Long-only trades vs short-only trades vs hedged trades;
- Trades with BTC vs trades with LTC;
- Riskier trades vs more conservative approach.
Though it always takes one position to start trading, after a while, one would think “What could the results be if I did the opposite?”. You can only check that with a separate trading account.
Aside from strategy and style, there are numerous options for how you want to set up your trading account on broker.cex.io:
➡️ Multiple account currencies to choose from: BTC, ETH, USDT;
➡️ Multiple leverage levels to use: 2x, 3x, 5x, 10x, 100x.
In BitMEX and Binance Futures, unless you master up a way to have another user account – you can only have one trading account. With that, your order history becomes the track record of all the positions you’ve opened. But then it’s on you to “mentally” separate different strategies or just have one strategy for everything.
✅ Cross Margin and Isolated Margin
Risk management in trading is closely connected to the concepts of Cross and Isolated Margin. You can refresh what those are from this article: Cross Margin and Isolated Margin – Your Superpowers in Margin Trading.
Being foundational for trading, Cross Margin and Isolated Margin options are present in all platforms we are focusing our comparison on.
But here’s a twist!
How these platforms implement Cross Margin and Isolated Margin makes a lot of difference!
In BitMEX and Binance Futures, you select whether your position (the netted, resulting, aggregated position) is using cross margin, i.e. the entire balance on your account would support it, or you choose an isolated margin. In that case, only the margin you allocate to this position will be supporting it at a given moment of time.
In the course of the position being open, you can switch between the options back and forth, essentially changing its risk profile. Yet, if you take a snapshot in time for a specific pair you trade, your situation is binary, you are either using a cross- or isolated margin.
For example, you trade BTC/USD with BitMEX perpetual futures. You keep accumulating a larger position, and your entire BTC/USD exposure in the market has either cross- or isolated margin, and never both. Once you commit to a certain choice, the financial result of your position at that moment will be affected by that choice.
The setup is different in CEX.IO Broker. As you remember from the article before, in CEX.IO Broker, the cross margin is used inside a trading account and the isolated margin is used between the trading accounts.
This way, within one account, the balance and profits of one position can help to satisfy the margin requirements of another position i.e. the positions can avoid unnecessary liquidation.
Between trading accounts, margins are kept apart, so an unfortunate liquidation on one trading account will not affect any profits on another trading account.
Hence, in CEX.IO Broker, you can have both cross margin and isolated margin used at the same time for you trading in a specific pair. This setup allows you to compartmentalize or connect the risks of your positions the way you choose to.
Take the example we used to describe multiple trading accounts: long-only trades, short-only trades, and hedged trades in three different trading accounts. In each account, trades share a similar goal, approach, and risk profile. So they share the margin. Between the accounts, however, these risk profiles differ. Hence, the margin is separate, isolated.
In CEX.IO Broker, cross margin within one trading account and isolated margin between trading accounts provides risk management that does not sacrifice trader’s flexibility.
The foundation of margin trading is leverage – i.e.borrowing the capital to increase the size of positions you can open and multiply the potential return on your own funds.
We live in a time when a trader has an option to use tremendous size leverage on many platforms. In some, it goes as high as 500x!
And, if there could be one thing you need to know about leverage, it would be the fact that it works in both directions. I.e. it can greatly amplify your returns and it can also accelerate your losses.
“Self-destruction by a sneeze” – what we call liquidations of extremely highly leveraged positions that have insufficient margin the moment the price makes the slightest move in the undesired direction.
Though a decision which leverage to work with lies with a trader, how the leverage facility is provided differs in various platforms.
Here’s what we mean:
In places like BitMEX and Binance Futures, you can adjust leverage after you’ve opened a position. I.e. opening it initially with 5x, you can subsequently move it to 20x later.
In CEX.IO Broker, you open a trading account with certain leverage (and you have leverage sizes to choose from). That means all positions on that trading account will have that leverage all the time.
One may argue that allowing a trader to adjust leverage, as a position is open, is a good thing. Our philosophy, however, revolves around understanding how highly psychological trading is. It is almost impossible to escape the temptations of greed and fear in the trading process. And, under the influence of those emotions, people make decisions about changing the leverage in the least favorable moments.
For example, the times of high volatility require traders to maintain the most composure. These are also the times when keeping it cool is the hardest. In this environment, when risks are elevated, allowing a trader to change leverage adds even more risk.
To put it simply, people make mistakes at the very wrong time.
Adding the constraint of unchangeable leverage, we diminish the number of moving parts, which can get a trader in a bad situation, and eliminate unnecessary, emotion-driven, risk-taking.
In CEX.IO Broker, fixed leverage on specific trading accounts provides discipline working with leverage and limits “fatalities” by wrong moves.
We went quite a bit into the setup differences between the platforms. And we believe that our setup at CEX.IO Broker is optimal for the flexibility of trading and for disciplined risk management.
Yet, at the beginning of the article, we promised to describe one more important difference between the platforms that stems from the nature of the financial instrument. And it’s liquidation. One particular feature of it – auto-deleveraging.
BitMEX and Binance Futures have auto-deleveraging. CEX.IO Broker does not.
Let’s get into the details.
As we described in the start, the futures market is “self-contained” – there is the demand for futures contracts and supply of futures contracts. Hence, the liquidity in such a market will consist of the limit orders to buy and to sell futures placed by the market participants there.
A significant market price movement in the futures markets may lead to a massive liquidation of one side (buyers or sellers), without sufficient liquidity available to cover all liquidating positions.
To prevent this disbalance from accelerating out of control and lead to even more liquidations, the system starts automatically closing the OPPOSITE (i.e. profitable) positions in order to “deleverage” the market.
Here’s an example. Say you’ve entered into a short position in futures on Binance at a beautiful moment, and the price starts falling right before your eyes.
The less fortunate traders with longs are getting painfully liquidated. You celebrate thinking that you finally got it right this time. And, out of a sudden, your short automatically closes while the price continues going down.
That’s the auto-deleveraging in action, to process the liquidating longs. And usually, the profitable and higher leveraged traders are de-leveraged first.
Though there are insurance funds in Binance Futures and BitMEXs that are aimed to avoid auto-deleveraging, the history shows that it does occur as sometimes insurance funds are not enough. So profitable positions have to step in and cover (whether they want it or not).
Well, at least you know that trading futures one day you might need to give your hand (and profits) to save the other side of the market. That’s just how it works in those places…
There, you trade contracts for difference, and the Broker actually executes the orders in the spot market. That means, unlike in futures, there is no need to maintain the balance of buyers and sellers. There can also be no tilts, or disbalances, in the contracts for difference market. As long as there is liquidity in the largest exchanges, your order, buy or sell, will be executed, whether the price is plummeting or soaring. 👌
Put it simply, no concept of automatic deleveraging exists in contracts for difference trading on CEX.IO Broker. Because there is no need to deleverage. So no surprises there.
There is no concept of auto-deleveraging in CEX.IO Broker: as orders are executed on spot exchanges, the ratio of buyers and sellers does not matter.
Some Like Banana and Some Like Chocolate
When you start a conversation about the advantages and differences of one platform over the other, it’s usually a long one.
Key points that we went through here are the differences that come from the core functionality.
Not the fluffy, subjective stuff, but how things work.
Compared to other platforms, CEX.IO Broker works differently in many key aspects.
In our view, our chosen financial instrument and our platform setup allow you to efficiently participate in a fair and transparent trading environment. No hidden nuances, no backstabbing with unpleasant surprises. It is elegant, simple, and beautiful.
There are of course more differences between CEX.IO Broker, Binance, and BitMEX. Customer service, communication style, layout, the list can continue. And those can be very important. But with those things, just like in ice cream, some like it banana and some like chocolate. It’s a matter of taste.
Yet when you know the components that go into your experience of the market, and you know how good those components are, you can then choose between your favorite flavors.