Frequently Asked Questions (FAQ) of Trading in StormGain
Perhaps the main appeal when it comes to trading crypto options is that they provide a much higher level of volatility. The higher volatility translates into higher potential profits at a higher risk. The options model price structure makes it so that changes in the price of the underlying asset are multiplied to result in the option’s value. Therefore, crypto options result in much steeper price swings when it comes to the value of the option compared to the underlying asset itself.
Why should I trade Crypto options?
Much higher volatility on Crypto options compared with the underlying asset.
In the example above, you can see that Bitcoin is up 3.47% for the day. Notably, the corresponding price changes for the various Crypto options linked to Bitcoin range from 62.29% to 851.15%. This translates to price changes that are approximately 20 and 280 times greater.
Crypto options allow you to take larger positions with the same amount of capital. The reason for this is that the price of options contracts tends to be significantly lower than those of the underlying asset. For example, a call option on Bitcoin may be around $100 dollars depending on your strike price. Let’s say for example that Bitcoin is trading near $10,000. In essence, you can trade the price changes of Bitcoin at a fraction of Bitcoin’s actual cost.
Let’s stick with the Bitcoin example more. Say you think the price of Bitcoin will go up. If you were to buy Bitcoin itself for $10,000, and it jumps to $11,000, you would make $1,000 minus any associated transaction fees to successfully close out your position for a nice 10% return.
Let’s now imagine that you’ve invested the same amount to buy 1,000 call crypto options on Bitcoin, each costing $10, for a total of $10,000. The same $1,000 change in Bitcoin from $10,000 to $11,000 can easily multiply the price of crypto options by 8 to 10 times. While this does occur occasionally, let’s use a more conservative figure and assume that the price of the options increases by 5 times. In this example, if you were to close your position and sell your 1,000 crypto options at the new price of 50 (5 x 10), you would get 50,000 (1,000 x $50) (minus transaction fees). Therefore, you would have realised a 40,000 profit with the same 10,000 investment for a (40,000 / 10,000) * 100 = 400% return.
The above example serves to show the potential returns that crypto options can generate compared to investing directly in the crypto asset itself. While this example could be the case, the reverse is also true to a certain extent. With crypto options, you only stand to lose your initial investment. For example, if the price of Bitcoin falls dramatically after you purchased the $10,000 worth of calls, the most you would lose, no matter how much Bitcoin falls, would be $10,000 - the original price of the investment.
Therefore, it is advisable to invest only an amount that you are willing to lose and manage your risk by using an appropriate Stop Loss level.
Avoid some costs
Another interesting point about trading crypto options is that with them, you are not using overnight swaps. This serves to reduce overall trading costs, and could be particularly important in mid and long-term trading.
Now that you have a better understanding of the advantages and disadvantages for using crypto options, it’s now time to learn about some of the best strategies you can use with them.
What do I need to know about Crypto options?
Crypto optionsCrypto options differ from traditional options, in that they are derivative instruments that provide the ability to trade on the price fluctuations of the underlying crypto asset without the necessity of actually owning the crypto asset itself. When trading crypto options, you’ll be gaining or losing the difference between the opening and closing price of the position, depending on where it was trading when the crypto option contract was activated.
StormGain gives you the power to trade crypto options on a variety of different crypto assets. The crypto assets that can be traded as options can be found in the platform’s Options section, listed as a subsection of the specific crypto asset. Here you will find the different types of options contracts, such as calls and puts, along with expiry dates and strike prices.
For example, below you can see Call and Put options on Bitcoin, expiring in November with strike prices ranging from 19,100 to 19,400.
The key difference between crypto options as derivatives here and traditional, physical options, is that with crypto options, you will not be able to buy the underlying asset at the specified price before expiry. Rather, you’re solely trading the price fluctuations of the underlying asset.
Now that we’ve covered the basics on crypto options, let’s go over some of the basics about traditional options to help you trade even more confidently. Traditional options are derivative financial instruments whose value is determined by the underlying asset, such as a stock, commodity, or equity index. They provide traders the option, but not the requirement, to buy or sell a specified amount of the underlying asset at the price it was trading at when the contract was initiated. Because this is not a requirement, they do not oblige the trader to buy or sell, which allows for greater flexibility.
Crypto options vs traditional options
- Call options give the owner the right to buy the underlying asset at a predetermined price within a certain time frame.
- Put options give the owner the right to sell the underlying asset at a predetermined price within a certain time frame.
- The underlying asset is the financial instrument whose price fluctuations determine whether the value of the option goes up or down.
- The strike price is the price at which the underlying asset can be bought, in the case of call options, or sold, with put options, if they are exercised by expiry.
- The expiry, often referred to as the expiration date, is the specified time frame for which the option can be exercised. The period between opening and expiry is known as the “time to maturity.” Please note that the crypto options offered on StormGain expire automatically at their expiration date, meaning that the position will be closed automatically if not sold by then. It’s therefore important to keep a close eye on your crypto options contracts.
Without spending hours going into excessive details and financial formulas, it’s enough to say that the following key points determine the value of crypto options:
What determines the price of Crypto options
- The price of the underlying asset is a central determining factor.
- Market volatility is an additional key factor of the price and value of crypto options. Higher volatility typically translates into a higher price for the associated crypto options.
- The date of expiry also influences the price. The greater cushion of time between opening and expiry, the greater the chance is that the option will reach or exceed its strike price. Options with far out expiration dates are known as leaps, and are typically more expensive.
- Lastly, the supply and demand for specific crypto options will influence price.
Profit ShareA profit share is an approach that allows users to avoid paying commissions for trades. The only commission, or share, the user pays when the trade is closed with a profit. If the trade losses money, the user doesnt have to pay any fees. But, if the user profits on the trade, he/she just shares 10% of the profit with the exchange platform. Its a classic win-win scenario.
How does it work?When users go to the window to open a new trade, theyll see a message saying that theres a 0% fee to open trades and that a 10% profit share will only be taken from profitable trades.
When a user opens a new trade, he/she will see a notification saying that this trade has been opened with a 0% fee.
When closing the position, the trade report will show the user a breakdown of all commissions taken, including the Profit Share, if applicable.
You can find all information regarding 0% commission and profit sharing on the Fees and Commissions - Trading page.
How do you open a trade?On the trading platform, open the Futures sections list of instruments and select the instrument youd like to trade.
Select a Wallet in the New trade window, enter the trade amount, set the leverage, Stop Loss and Take Profit levels. If you expect the cryptocurrency to increase in value, select the Buy option, and if you think itll drop against USDT, select the Sell option.
Transaction fees will be applied to every trade. You can see their charge in the Open Position window as well.
This is what opening a position at a market price looks like.
If the current price isnt satisfactory, the trader can open a pending Stop Loss or Take Profit order. The other type, pending orders, are made when they meet certain conditions. For example, a trader can place an order to open a trade when the price reaches a certain price. Set the trade parameters, the target price for the trade to execute and the trade direction.
Once this quote price is reached, the position will be opened automatically.
Order types for margin trading. Market and limit ordersTraders have several ways to complete cryptocurrency trades so that they can manage their trades effectively. They can also set and change their target price and/or loss limits.
All orders are divided into two types: market and limit orders.
Market orders are for opening or closing a position at the market price immediately after submitting the order. This means that the trader completes the trade here and now at the current price. To do that, traders must open the trade window, enter the transaction information (the volume being traded and leverage amount) and select whether its a buy or sell order. Take Profit and Stop Loss levels can also be set.
Traders can complete the position they selected in the open positions section by clicking Close to close a position at the current market price.
The other type, limit orders, are executed when certain conditions are met. For example, a trader can place an order to open a trade when the price reaches a certain price. To do this, go to the "Limit/Stop" tab in the window to open a trade.
After that, set the position parameters, the target price when the deal should open, and the trade direction.
Stop/Loss can be used by a trader to guard against extra risk. Traders can decide in advance what limits they want to set on their potential risks. You can set the Stop/Loss when reaching a specific price on an open position. Just select the appropriate position from the list of all open positions. You will see a window:
Activate the "When price is reached" option by left-clicking it. Enter the desired value and click "Save".
Take Profit can be used by a trader to lock in a certain amount of profit. The cryptocurrency market is extremely volatile, which often leads to situations where the price rises very fast before reversing course just as quickly. Place a Take Profit order to make sure you dont miss your chance to lock in profit. Traders can set a specific price at which the trade will close when reached. Stop Loss is set the same way as Take Profit (see the procedure described above).
FuturesFutures are the type of derivative contracts. A derivative contract allows traders to speculate on the price movements of assets without ever physically trading the asset. A derivative contract is a tradable contract that is based on the price of an underlying asset. The contract is an agreement a trader makes to enter a trade based on the price of the underlying asset. For example, a Bitcoin future contract is based on the underlying asset, Bitcoin. Therefore, the contract price is very close or identical to the market price for Bitcoin. If Bitcoin goes up, the price of the Bitcoin contract goes up and vice-versa. The difference is that the trader is trading a contract and not Bitcoin. There are a number of different types of derivative contracts that all have different benefits for traders. Futures, perpetual swaps, contracts for difference and options are all examples of different derivatives. They are called derivatives because the price of the contract is derived from the underlying asset.
The advantages of derivatives contracts
Different trade directions: traders can profit from both price increases and price decreases, something that is impossible when you are simply buying and selling an asset.
High Leverage: traders can open trades that are worth more than their account balance using leverage.
Control exposure: traders can speculate on the price of an asset without ever owning it.
Low barrier to entry: traders are able to trade on an asset’s performance, without investing the equivalent amount upfront.
Risk management: for many traders, derivatives can provide a new means to manage trading risk.
The underlying asset for Stormgain Futures is Index price. The Index Price is derived from spot quotes from major cryptocurrency exchanges such as Kraken, Coinbase, Binance, etc.
A list of available futures on Stormgain platform can be found in the Futures’ tab:
1. Trading chart
The chart shows the price movement of the chosen asset. Trading chart allows traders to use indicators to spot trends and assess when to enter and exit the market.
2. Instruments panel
This is the list of available instruments. The trader can also add new instruments by clicking on “plus” icon and choosing the necessary instrument from the list.
3. Order book
The order book displays buy and sell orders of a particular financial instrument. More information about Order book can be found by the link https://support.stormgain.com/articles/what-does-order-book-mean
4. Positions Orders panel
This panel contains all the information about trader’s open or closed positions and orders.
5. Order creation panel
This panel is used to create an order and open a trade. There are a number of options when opening a position: trade direction (sell or buy), leverage, risk management (Stop Loss and Take Profit).
What does Order Book mean?The Order Book or Depth of Market (DOM) is a measure of the supply and demand for liquid and tradable assets. Its derived from the number of open Bid and Ask orders for a particular asset, exchange order or futures contract. The more orders there are, the deeper or more liquid the market is. The Order Book represents a list of limit orders for a tradable asset.
Spread and Order Book
A transaction on the market occurs only when the value satisfies both sellers and buyers. However, there are no negotiations between the parties on financial platforms; all transactions are concluded with the help of market and Bid/Ask orders.
How the Order Book works?The Depth of Market, or Order Book, displays the current Ask and Bid market prices. As soon as an order for the required amount of an asset with the Ask price corresponds to a similar Bid price, a transaction takes place.
In StormGains Order Book, users can view current market orders, Ask as a buy price and Bid as a sell price. Currently, liquidity in the Order Book is provided by institutional market makers. However, in future updates, our clients could also see their liquidity.
Transactions are automatic for limit orders. For example, if a trader wants to fix losses and sets a sell limit order (Stop Loss) at a certain price level, the traders order is automatically executed if the price reaches that level.
What is Bid price and Ask price?When trading on financial markets, its important to bear in mind that there are always 2 prices at any given moment: the price at which you can buy an asset (the Ask price) and the price at which you can sell an asset (the Bid price).
Just think about what its like when you go to the bank to exchange a foreign currency. Youll see two prices on offer there, too: one for buying and one for selling. The Buy price is always higher than the Sell price. Its exactly the same on the cryptocurrency market. The Ask price is what you pay when buying your crypto, and the Bid price is what you get when selling it.
Lets say you want to open a trade. You need to do a bit of chart analysis first if youre going to make the right decision. On the chart, youll see the mid-price. This is the average price of the Bid and Ask prices.
Now imagine you decide to buy. In the open trade window, the price youll see is the Ask. Thats the price youll pay when you buy your chosen coin.
Now that youve bought your desired cryptocurrency, youll eventually have to close it. When you close your position, youll do it at the Bid price. It makes sense: if you bought an asset, now you need to sell it. If you previously sold the asset, now you need to buy it back. So you open a position at the Bid price and close it at the Ask price.
Limit orders are also executed at the Bid price if theyre being sold and the Ask price if theyre being bought. Take Profit and Stop Loss limit orders are similarly executed at either the Ask or Bid price depending on the type of transaction.
Heres the key take-away. If youre selling something, itll be at the lower price (the Bid). If youre buying it, itll be at the higher price (the Ask).
Funding FeeWhen trading on the StormGain platform, you will be charged our funding fee several times a day. These fees are applied at regular and equal intervals.
The funding fee may be positive or negative depending on your position type (buy/sell) for any given cryptocurrency pair. This is because the fee amount is calculated based on the difference between perpetual market contracts and spot prices. As such, the funding fee is subject to change depending on the market situation.
You can see the funding fee amount and how long until its next debited from your account each time you open a new position.
Figure: Web platform
Figure: Mobile app
Alternatively, you can find details of the funding fee amount and when it will be debited from your account in your trade reports.
Instruments available for trade and exchangeThe StormGain app has various cryptocurrencies available for trade and exchange.
The platform currently offers 34 cryptocurrency pairs and indexes for trade. These include pairs with Bitcoin, Bitcoin Gold, Bitcoin Cash, OmiseGO, Ethereum, Ethereum Classic, IOTA, Cardano, Monero, NEO, Zcash, EOS, Tron, Litecoin, QTUM, Nem, Stellar, and Dash.
A list of available instruments on the platform can be found in the Futures tab.
The list of instruments available for trading can be found on the Fees and Limits page (https://stormgain.com/fees-and-limits).
StormGain also offers 22 cryptocurrency pairs for exchange operations (available in the apps Exchange tab).
Cryptocurrencies can be traded on StormGain with a leverage.
Minimum and maximum leverage
A leverage is used to manage risks when performing a cryptocurrency trade. A leverage also proportionally affects the amount of commission charged when opening trades and moving them to another trading day.
The minimum leverage for all available cryptocurrencies is 5. The maximum depends on the trading instrument, ranging between 50 and 200. The leverage can be changed in increments of 1.
Any changes to trading conditions can be found on the Fees and Limits page (https://stormgain.com/fees-and-limits).
Liquidation levelAt StormGain, theres such a thing as a minimum trade amount. That amount is 10 USDT for all cryptocurrencies. However, when taking the leverage into consideration, the amount can increase by 5, 50, or 200 times, depending on the instrument. You can learn more on the Fees and Limits page (https://stormgain.com/fees-and-limits). The minimum deposit amount is 50 USDT.
StormGain has a liquidation level. Liquidation level for a specific trade comes into play when the level of loss on a position reaches the amount invested in the position. In other words, when losses reach 100% of the amount the client invested in the position with his own money. At this point, the position will be automatically closed.
A Margin Call is a warning that the closing threshold is at risk of being crossed. Youll receive a notification when the loss on your position reaches 50% of its total amount. This allows you to decide whether to increase the position amount, update the Stop Loss and Take Profit parameters or close the position.
What is a leverage and how can it be changed?A leverage is used to manage risks when performing a cryptocurrency trade. A leverage also proportionally affects the amount of commission charged when opening trades and moving them to another trading day.
The leverage makes it possible to increase profitability on trades. It also allows the funds available on your StormGain account to be used more effectively. Using it is the same as working with funds that are up to 300 times the amount thats available on your account when completing cryptocurrency trades.
The maximum leverage amount to complete trades depends on the trading instrument and can vary from 5 to 300 (with step 1). You can view detailed trading conditions for each instrument, including its maximum leverage, on the Fees and Limits page.
The leverage is set when a position is opened.
The leverage amount can be set manually in the appropriate field or by selecting the desired level on the sliding scale.
The leverage cannot be changed for a position that has already been opened.
How to grow your positionYou can increase the volume of your trade on the StormGain platform.
To build-up an already-existing trade, select the one youd like to build-up from the Open Trades list and click on it once with the left mouse button. You will see a window:
Hit the Increase Amount button.
Enter the amount with which youd like to build up your trade to the Add field. Confirm by clicking on Apply.
You can also set it so that the trade builds up automatically. This can be done with an already-opened trade. Just tick the Build-up this trade automatically for the next time box. Building-up a new trade is also possible.
When opening a new trade, tick on the Autoincrease field.
For this case, every time your losses on this trade reach 50%, an additional 50% of your trade value will be automatically invested to keep the trade open.
All running trades and pending orders will be displayed in the corresponding section on the platform.
How do you close your trade?
Select the trade youd like to close from the trades list. If you hover your mouse over it, you will see a Close button.
When you click it, youll see a window pop up with the trade parameters and confirmation button.
If you click the Yes button, your trade will be closed at the market price.
There is another option. Select a trade from the trades list and click on it. After youve done that, youll see this kind of window:
Here, you can edit your trade parameters or close it by clicking on the corresponding button.
How much trading commission do we charge?
There are several types of commission/interest on StormGain:
- Exchange commission for converting one cryptocurrency for another. This is charged at the moment of conversion.
- Transaction commission on trades made with leverage. This is charged at the moment a trade is opened/closed.
- Financing rate. The interest associated with the financing rate may be positive or negative. It is charged or paid out several times a day. This takes place at specific equal intervals of time. For full details, please click here.
An exhaustive list of instruments and their associated commission/interest fees can be found on the website.