Trading Futures On The Blockchain with Digitex
The trading of financial instruments and derivates is nothing new, we've been doing it for years even before the internet. Once the internet was introduced however it opened up the market to brand new eyes, investors and opportunities but the barrier to entry were still very high as well as the technical knowledge, tools and capital needed to get started.
Then along came cryptocurrency and just like the internet it has changed the way we see money and facilitate trade and financial transactions. I think it's safe to say that the cryptocurrency market is one of the most volatile markets in the world. The value of currencies fluctuate on a daily basis and can take huge losses or make crazy gains in a matter of hours, if not minutes. Then when we consider that these currencies can be traded for one another and the various trading pairs that exist you will quickly realise how complex trading can become especially profitable trading.
Trading on futures
Day trading is not for everyone, we all simply do not have the time, expertise and funds to deal with making money on market fluctuations. In order to mitigate the high risk involved in the volatility and hedge safer bets futures contracts are a great alternative.
A Futures contract is a promise/legal agreement to buy something at a specific date - a standardized asset or commodity (apples, oranges, etc), at a specific price, in this case, however, It would be cryptocurrency.
This simplifies the process of trading and lowers the barrier to entry for investors both independent and institutional who want to have a little more assurance on the risky investments they place.
Difficulty of trading futures
The current issue with futures is that its traditional been seen an institutional financial asset and only brokers would take advantage of. Futures are normally issued by a specific financial institution and there is a bit of a dark market when it comes to trading your futures before the contract expires.
The cost of taking out and trading futures is also a big barrier that many simply cannot justify and would rather shy away from this type of financial insturment all together.
How Digitex aims to make futures accessible
Easy access
Now that you understand the value of Futures and the current issues futures have we can take a look at how Digitex aims to fix the problem and open futures trading to the public. Firstly Digitex is an open and decentralised platform that allows anyone with cryptocurrency to create an account, purchase, trade or swop futures on its platform.
Commision free trades
Using the power of utility tokens called DGTX the Exchange will be able to offer commission-free trading. Since all profits and losses are expressed in terms of DGTX, traders must own DGTX to take advantage of the commission free system, which creates value from initial buy-in and a need for users to have DGTX tokens!
A short Introduction into Digitex from its Founder
Use cases for Digitex
Let's for argument's sake you've been invested in Bitcoin for some time now, you're a long-term Hodler and you're not willing to give up your stake because you feel it will be worth a lot more one day. In the meantime, you're technically losing money as the value continues to decrease and you don't want to put too much into an additional stake in case you're wrong or it takes longer than expected to recoup your gains.
So what can you do in the interim period? Well, the money you wanted to use to increase your stake in a certain currency can be used to purchases a futures contract for a certain time period. You can take out a contract based on whether the price goes up or, down (shorting the cryptocurrency). If you're hedged your bet correctly you'll receive a payout once the contract expires.
You can then play this market while your current Bitcoin stake remains safely stored away as a little nest egg.
What I think of Digitex
I think Digitex has a serious opportunity on its hands to do things right and introduce the concept of futures and other financial derivatives to the blockchain and allow independent traders access to these markets.
If Digitex can successfully scale and attract more investors and institutional money into the platform and into cryptocurrency we could see a more mainstream use of blockchain, more funds being pushed into the space and less volatile over time which will encourage more practical use.
Which is ultimately what we all want for the industry. Its zero transaction fee model will make it very hard for alternatives to compete and could be a disruptive force in the online trading platform market.
We will, however, have to wait till once its launched to see if Digitex has what it takes to fulfil the huge upside potential in the market it's trying to target and disrupt.
Get to know Digitex a lot better
If you found my review of Digitex interesting and would like to get a in-depth information about the project then check out the following resources:
This is my submission for the @originalworks writing competition found here
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@chekohler more articles will be?
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