Deribit exchange review – Everything you need to know

Introduction

Deribit Crypto Exchange, a pioneering platform in the crypto market, has established itself as a premier hub for specialized derivatives trading. Since its inception, Deribit has been at the forefront of offering advanced options and futures trading solutions exclusively for Bitcoin and Ethereum. This focused approach allows traders to delve into intricate financial instruments with various benefits. Deribit stands out for its liquidity, boasting high trading volumes that translate to narrow spreads and improved execution.    

However, this unique positioning comes with considerations. Traders must navigate the intricacies of leveraged trading, which can amplify both gains and losses. Additionally, while Deribit offers unparalleled expertise in its niche, there might be better platforms for those seeking a broader range of cryptos. Regulatory restrictions also come into play, with certain regions unable to access the platform due to legal constraints. 

In summary, Deribit crypto exchange presents an exclusive gateway into the dynamic world of crypto derivatives trading, characterized by specialization, innovation, and market-leading liquidity.

Platform overview

Deribit was formed in June 2016 and since then it started providing service from Panama City, Panama as a Bitcoin trading platform. With a primary focus on Bitcoin and Ethereum, the exchange offers a range of futures and options contracts. 

Traders benefit from its user-friendly interface, complete with real-time data visualization, customizable charts, and various order types. The platform's emphasis on liquidity is evident through its high trading volumes, resulting in competitive spreads and efficient trade execution. However, Deribit's exclusivity to Bitcoin and Ethereum derivatives might limit its appeal to traders seeking a wider range of assets.  

Moreover, the availability of leveraged trading options demands careful risk management, given the potential for amplified gains and losses. While Deribit positions itself as a leader in crypto derivatives, its offerings and features cater primarily to seasoned traders, potentially leaving beginners facing a steeper learning curve.    

Key features

Deribit Crypto Exchange boasts a range of key features that distinguish it in the world of crypto derivatives trading. Focused primarily on Bitcoin and Ethereum, the platform provides an array of futures and options contracts, allowing traders to harness advanced trading strategies. 

Its high liquidity, driven by substantial trading volumes, ensures tight spreads and efficient order execution. The user-friendly interface offers real-time data visualization, customizable charts, and diverse order types, catering to traders of varying expertise. 

Notably, Deribit's leverage options – up to 100x for BTC and 50x for ETH – enable the potential for substantial gains, though users must exercise caution due to heightened risk. While Deribit excels in its niche, its exclusive focus on two cryptos might limit its appeal to those seeking broader asset variety.        

Trading Futures 

Futures contracts are priced at $10 with a default leverage of 1:10, though Deribit offers leverage up to 1:20. The Deribit index, sourced from average prices across 5 major exchanges, serves as the mid-market price. The expiration price also relies on this index, using prices from 30 minutes before the trading day settlement, sampled every 6 seconds.   

Executing a market order involves outbidding the order book. To reduce fees, opting for “post only” prevents instant matching. After placement, the order transitions to open orders or positions. Modifying or canceling orders is possible within the open order tab. 

However, the platform doesn't support protective measures like stop-loss or take-profit orders, nor can position closure occur in the open order section. These actions, including setting stop-loss, take-profit levels, or closing positions, require the trade slip.   

Inverse Perpetual

Deribit's perpetual contracts resemble futures but lack expiration dates. They incorporate funding payments to maintain proximity to the underlying crypto price (Deribit Index). If the perpetual contract exceeds the index price, long-position traders make funding payments to short-position traders, altering attractiveness. This aligns the perpetual price with the index. 

Conversely, if the perpetual price is lower, short-position holders pay long-position holders.

Continuous monitoring of mark price versus Deribit Index drives an 8-hourly funding rate for all ongoing perpetual contracts. Funding payments are real-time and impact the realized P&L account, part of the trading balance. Daily settlement transfers realized PNL to/from cash balance for withdrawals.     

Transaction history showcases total funding in the “funding” column, reflecting funding applied to net positions between relevant and preceding trades. In essence, traders can track funding paid/received for position changes.  

Linear Perpetual

Deribit's perpetual contracts mirror futures but lack an expiry date. These contracts involve funding payments, introduced to align the perpetual contract price with the underlying crypto value, the Deribit Index. If the perpetual contract exceeds the index, long-position traders pay short-position traders, reshaping attractiveness. This process drives the perpetual price towards the index. Conversely, if the perpetual price is lower, short-position holders compensate long-position holders.

The Deribit perpetual contract maintains ongoing tracking of the mark price versus the Deribit Index. This percentage difference underpins the 8-hourly funding rate for active perpetual contracts.

Funding payments are computed continuously and impact the realized P&L account, integral to the available trading balance. Daily settlement transfers realized PNL to/from the cash balance for withdrawals. Total funding payments appear in the transaction history's “funding” column, reflecting funding applied to the trader's net position between the current and previous trade. In essence, traders can monitor funding for position changes.

Trading Options

When it comes to Bitcoin options, the market for these options remains rather limited. This is unsurprising given that the option market for Bitcoin is still relatively young. Nevertheless, among the global platforms providing Bitcoin options, Deribit stands out. Although trading accounts start with an initial margin requirement of 10%, you must ensure a 3% margin for your positions. If your margin drops below this maintenance threshold, your positions will be automatically liquidated until your margin balance goes back above the maintenance margin level.

Trading Spots  

This pertains to the fundamental approach in crypto trading, commonly used for buying or selling cryptos. A spot trade involves placing a buy or sell order on an exchange, entailing the acquisition of custody when purchasing and the relinquishment of custody upon selling the crypto. These trades typically conclude upon execution, occurring instantly on the trading “spot.”

As per our finding, Deribit has a strong weakness in terms of coins availability. Based on our review, there are three crypto pairs are available to trade, which are-

• BTC/USDC
• ETH/USDT
• BTC/ETH

Trading Derivatives   

This trade type offers a more intricate approach, enabling the buying or selling of an asset like BTC, ETH, or SOL at a future point. Derivative contracts derive value from the underlying asset, yet they are distinct transactions that don't involve direct asset trading.

Derivatives can be exercised in the future, diverging from the contract's purchase time. They possess expiration dates, with value influenced by projected market shifts. Derivatives often secure crypto prices in advance, permitting purchase or sale at the set price on the expiration date, regardless of market actuals.

Deribit operates as a centralized exchange (CeFi), housing client funds in platform-controlled crypto wallets while directly managing markets. Comparable exchanges like Coinbase follow this model.

In contrast, decentralized exchanges (DeFi) connect buyers and sellers through smart contracts, lacking custody of assets or liquidity provisioning. Uniswap and Sushiswap are examples.

Deribit suits intermediate and advanced traders comfortably with forecasting price changes and maintaining the requisite margin for derivatives. While these trades can yield substantial profits, they also pose risks and can be perilous for inexperienced traders.

Deribit leverage

Deribit facilitates options trading with leveraged futures contracts. Bitcoin futures can offer leverage up to 100x, whereas Ethereum allows up to 50x leverage. Leveraged transactions extend to the options market as well. The robust liquidity on the Deribit platform supports options trading for Bitcoins with leverage of up to 10x.

Deribit's new feature: The Option Wizard

Deribit has introduced the Option Wizard, a tool designed to help users identify the best option strategy based on their market price predictions. In essence, options are versatile instruments that let traders capitalize on diverse market expectations, be it a rise, fall, or stability in an asset's price. However, choosing the right strategy can be daunting, especially for novices.

The Option Wizard streamlines this process. Users input details like their currency of interest, price expectations, prediction date, and investment ceiling. The tool then uses real-time Deribit market data to suggest a strategy, highlighting potential profits, returns, and maximum losses.

It's not just about calculations. The platform also offers visual aids, such as a graph depicting profit and loss against varying underlying prices, spotlighting the user's price prediction.

Ordering is also simplified. Users can click “Review Order” to see and confirm strategy details. But it's vital to remember that real-time price shifts could alter projected outcomes, and the Option Wizard's calculations don't consider individual account balances or portfolio compositions. Therefore, while the tool offers guidance, users should ensure any chosen strategy aligns with their financial position and goals.

For those new to options or needing a refresher, Deribit suggests their Options Course to grasp the intricacies of the trading instrument before leveraging the Option Wizard.

Security

Deribit employs a two-factor authentication system to bolster security. Users implementing this feature during login ensure that unauthorized access is thwarted even if their account password is compromised. The platform utilizes IP pinning, where any change in the user's IP address within a session results in session termination. This strategy safeguards against hackers attempting to infiltrate accounts.     

Additionally, session timeouts are in place, automatically logging out users after a defined period. This precaution addresses potential threats arising from device damage or theft.

Furthermore, 99% of users' digital assets are stored in cold wallets situated off the cloud. This measure prevents digital criminals from accessing these assets, enhancing overall security.

Other security features are explained below:

Insurance Fund

Deribit manages an insurance fund within the platform to safeguard against defaults from traders using excessive leverage, thus mitigating counterparty risk. This fund is individualized for each of the four primary supported assets: BTC, ETH, SOL, and USDC. Its utilization is infrequent, thanks to the platform's stringent liquidation protocols, preempting defaults by liquidating collateral.

Occasional bankruptcies are assessed on a case-by-case basis, with the insurance fund compensating the counterparts of these trades. The fund's replenishment is sourced from the platform's liquidation fees.

Sub Accounts

The risk management system at Deribit continually assesses your accessible funds to ascertain if they align with your trading commitments. For enhanced organization of trades and strategies, users might consider allocating their funds across distinct sections. This division is achievable through Deribit's sub-accounts feature, which allows each user account to establish up to 20 sub-accounts. 

Margin provisions for each sub-account remain independent from other accounts. Funds can be seamlessly transferred between sub-accounts, offering instant flexibility at any point.

Deribit video review

Fees

Deribit employs a maker-taker fee structure, differentiating fees for orders and adding liquidity from those consuming it. These fees are product-dependent and expressed as a percentage of the contract's underlying asset.

Trading fees

Deribit ensures a fee-free process for depositing Bitcoin and Ethereum. However, a trading fee is implemented using a maker-taker model for both futures and options trading involving Bitcoin and Ethereum. Additionally, a nominal delivery fee applies upon order execution at expiry.

A liquidation fee is levied, automatically contributing to the user's insurance fund. Withdrawal fees are contingent on blockchain network conditions, often leading to delays due to insufficient hot wallet balances. Customers with depleted hot wallet assets experience slower withdrawals, as these wallets are replenished daily.   

User experience

Deribit Exchange offers a user experience marked by its specialized focus on options and futures trading. The platform's interface is designed to strike a balance between user-friendly navigation and comprehensive trading tools. Traders benefit from the ease of executing trades, managing positions, and accessing market data. Deribit's risk management system continually evaluates available funds to ensure trading obligations are met, instilling confidence in users.

Furthermore, the introduction of sub-accounts enhances user organization by allowing the segregation of funds for various strategies. However, the absence of fiat deposit and withdrawal options might limit convenience for users inclined toward fiat transactions. Deribit's commitment to security through features like two-factor authentication, IP pinning, and ethical hacker incentives contribute positively to user trust.

Deposit and withdrawal methods

Regrettably, Deribit does not facilitate fiat deposits, necessitating the use of one of the five supported cryptos for funding: 

• Bitcoin (BTC) 
• Ethereum (ETH) 
• Solana (SOL) 
• Tether (USDT)
• USD Coin (USDC)

Compliance with KYC requirements mandates completion of the verification process before depositing funds, making Deribit convenient for crypto traders but less suitable for fiat currency enthusiasts.

Likewise, Deribit lacks fiat withdrawal options, requiring users to withdraw in crypto form. Although the deposit is free, a small withdrawal fee is applicable.These withdrawal fees are notably modest when compared to fees on other exchanges.

Customer Support   

Deribit boasts a highly effective customer support system. To initiate assistance, users begin by submitting a ticket outlining their issue. The support team promptly engages, striving for swift issue resolution. Deribit designates a dedicated email address for inquiries related to the API and potential bugs.

The platform places significant value on ethical hackers. Those who responsibly report potential security vulnerabilities within Deribit's operational setup receive substantial rewards through the Bug Bounty program. Additionally, Deribit's customer support remains reachable through the Telegram platform.

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Regulatory compliance

Deribit Exchange prioritizes regulatory compliance, aligning with industry standards to ensure a secure trading environment. By enforcing KYC verification, the platform confirms user identities and deters illicit activities. 

Deribit's commitment to AML (Anti-Money Laundering) measures strengthens its safeguards against financial crimes. The absence of fiat deposit and withdrawal options streamlines compliance efforts and reduces potential risks. 

Through these measures, Deribit maintains transparency and accountability, contributing to a trustworthy trading experience for its users.

Deribit restricted countries

Deribit exchange imposes certain geographical restrictions on the use of its platform and services. If you are situated in, incorporated in, or hail from any of the following countries, you are prohibited from accessing the platform: Canada, Central African Republic, Congo, Cuba, Guam, Iran, Iraq, Japan, Democratic People's Republic of Korea, Libya, Mali, Panama, Puerto Rico, Samoa, Somalia, Sudan, South Sudan, Syrian Arab Republic, United States, Virgin Islands (U.S.), and Yemen. Citizens or residents of these nations are also barred from using the exchange's services.

Conclusion

Deribit functions as a crypto derivatives exchange with several years of operational experience. Although it lacks official regulation, a substantial user base frequently engages with its services, deeming them secure. Deribit reviews generally reflect positivity, with sporadic concerns about slow withdrawals and demanding internet speed. Despite facing significant challenges, such as a major security breach and a flash crash in 2019, Deribit executed a successful recovery, reestablishing its global reputation.