Reach 8m active traders with cTrader
If you live in London then at some point you may have gone to Yard Sale Pizza. Something you may have realised about this place is that actually it kinda sucks. The pizza isn’t that great and you have the same ‘has someone tried to poison me?’ feeling that you get after eating Domino’s.
What Yard Sale has been good at is building a bourgeois-hipster brand that makes you feel like what you’re buying is higher quality, even though it’s not that different – or is worse – than what you’d get at somewhere else at a lower price.
Anyway, the point is that they took a product that isn’t really that different from worse brands, but because they changed their decor, added a cool logo to their box, and generally appealed to the fixie bike aesthetic, it worked.
Get a real Prime of Prime today
You see the same thing in the US broker space. Binary options have a toxic reputation, and brokers also can’t call it gambling, so now they are branding binary options as ‘event contracts’ and ‘prediction markets’. And it works incredibly well. Kalshi and Polymarket have gone from zero to gigantic overnight and facilitate huge trading volumes as a result.
Another area where this is true is in the crypto markets with perpetual futures. A lot of people have a seething hatred of our beloved CFDs unfortunately, despite it being, as you all know, an amazing product.
The problem is that if you’re a crypto firm you want to offer derivatives because you make a lot more money than with a spot product. So what do you do? You add perpetual futures instead.
Get a Match-Trader server today
In practice, a perpetual future is a lot like a CFD. Indeed, it is hard to distinguish between prior and existing iterations of exchange-traded CFDs and these products.
The main points are that perpetuals are exchange-traded contracts that have no expiry, which let you trade with high leverage.
A key feature is an interest rate (or ‘funding rate’) that is similar to what you’d get with an FX swap contract. This is designed to keep the perpetual at the same price as the underlying, meaning you will either pay or receive interest depending on your position and whether the futures contract is higher / lower than the spot price.
The thing that I’ve always found interesting about this product is that if you go on a lot of platforms, even big ones like Binance or Bybit, it’s not really clear how they are actually structuring them.
Start using Centroid to manage your broker’s risk
Each venue prices and adjusts their contracts differently. You also have very little clarity on how the exchange operates, who the participants are, and so on.
You may have a bunch of numbers underneath your ‘buy’ ‘sell’ buttons that purport to be an order book, but there is not much else that tells you how the exchange is structured or processing trades.
What compounds my suspicions here is that it seems like there isn’t a single major crypto exchange that hasn’t been found out for market making on their own platforms.
Binance, Bitmex, Crypto.com, Kraken and – more infamously – FTX all appear to either run or have run their own trading desks. As we all know from the famous Taylor Woodrow call, you’re not buying stocks from the London Stock Exchange, you’re buying them from market makers. Well, with crypto, you are buying them from the London Stock Exchange.
Make your broker mobile-first today
Crypto ECN operator Crossover Markets wrote a blog post about this 12 months ago, which captures a lot of these points very concisely:
“In crypto, most “exchanges” tend to contrast sharply with this model. These firms have no members – instead, they have customers. They are not matching engines – instead of connecting buyers and sellers at a mutually agreeable price, they hold their clients’ assets and trade on their behalf. To be blunt, these “exchanges” are not exchanges at all – they are brokers, with some custodial functions thrown in for good measure.”
Or as one reader wrote to me earlier this year: ‘Crypto ‘exchange’ is the same BS as ‘prime’ FX’.
The point is that it seems like you could quite easily say ‘yea man, this is a perpetual future’ and then it’s actually an OTC CFD contract. You took the same pizza but packaged it to have all the trappings of the Canva tech template aesthetic, conspiratorial worldview of the crypto bro.
Three different executives from the trading industry that TradeInformer spoke to have confirmed that this is happening. So I guess that is what some people are doing! Not just that, but the underlying motivation appears to be exactly the same as our Yard Sale Pizza theory presupposes.
“If you try to sell ‘forex’ or ‘CFD’ products to a lot of crypto traders they don’t like it,” said a senior executive at one crypto firm. “It’s something psychological about calling them perpetuals. Even if it’s exactly the same, they think perpetuals are crypto native but forex and CFDs are part of the trad-fi world.”
The other question is whether doing this is actually wrong or breaking any rules. My sense is that in a lot of cases it’s not. Some regulators have bracketed perpetuals under existing derivatives laws but in many jurisdictions there are no rules or regulations.
For example, crypto firm XBO is registered in Curacao and offers perpetuals. From what I see, there are no rules governing crypto derivatives in the country. Consequently, you could offer what is effectively a CFD and say it’s a perpetual future, without breaching any local regulations.
If you think this can’t happen then I will tell you a short story. After St Vincent and the Grenadines said it would stop brokers from operating in the country, I went on Google Maps, found the nearest island (St Lucia) and called up the regulator to ask if they had any regulations governing CFDs.
After putting me on hold, they came back, and went “we don’t know what that is.” I am going to assume there are ‘many such cases’ for perpetual futures in different jurisdictions around the world. The result? You can change the packaging and get the crypto bros in. After all, is it really a CFD if you call it a perpetual future?