Introduction

The futures market allows traders to invest in assets they do not own and obtain profits from them, since many times trying to buy these assets directly, such as government bonds, Bitcoins, soybeans, etc., is too expensive for most of the traders. Futures contracts avoid the risk of manipulating those assets and obviously the high costs of them.

Nevertheless, the commissions for the transactions made with this type of contracts are significantly high and affect the trading strategies and, therefore, the profits are affected to a large extent.

However, in this situation, Adam Todd (Digitex CEO), proposes an exchange based on blockchain technology that eliminates transaction fees and instead uses its own native token to perform trading and govern itself autonomously, called Digitex Futures Exchange.

Digitex Futures Exchange

Digitex Futures is the first exchange with zero trading fees. Digitex uses its own native token, DGTX token, ERC223 compliant (unlike ERC20, ERC223 is cheaper in gas cost), to make purchases and sales of futures contracts in Bitcoin, Ethereum and Litecoin without any commission, which means that all profits and losses are denominated in DGTX tokens. Therefore, it is necessary that traders have DGTX tokens to participate in the exchange; thereby, Digitex eliminates commissions in the trades and covers the cost of operations and maintenance of the exchange by issuing a small amount of new DGTX tokens each year. However, there will be no issue of tokens to generate revenue in the first two years after the exchange was launched since the costs will be covered by the DGTX ICO.

The majority of the profits that a trader obtains when investing are generally reduced considerably due to the commissions charged by the exchanges, especially if it is a short-term trader. Digitex will attract many traders by eliminating commissions, which will allow obtaining a real profit and maintain a continuous liquidity within the system; attracting more traders.

Another aspect that will increase the liquidity of the exchange will be the trustless nature of Digitex. This means that the funds of the participants will not be in possession of the exchange, unlike the other exchanges, the balances of the accounts will be maintained by a smart contract on the blockchain of Ethereum, in a decentralized manner, which will be updated with the gains and losses incurred by the trader through the exchange. However, to prevent hackers from trying to update the smart contract with false information, the trader's profits or losses will be calculated from scratch, each time the balance of the trader's account is updated.

Digitex cannot freeze or seize the funds of the trader, as it literally does not own them, therefore for no legal reason whatsoever (authorities or government entities) or KYC / AML regulators, there will never be accessible to the funds of the traders. In the same way, Digitex cannot use the trader's funds either (as other exchanges do); In addition, it will not have access to the private keys of the DGTX tokens of the traders, so it will not be the target of hackers or attacks of malicious entities.

Digitex Futures Contracts

Before entering the Digitex futures contracts, we must know the concept of futures:

Futures are an agreement to buy or sell an asset on a specific future date at a specific price. Cointelegraph.

The concept of futures dates from the 1800s and in general was not a tool to maximize profits but rather for risk control, since both parties to the futures contract agreed to buy or sell an asset at a fixed price until the contract expired, regardless of the current price in the market.

To understand a futures contract, let's say that an airline wishes to create a 3-month futures contract to buy 1,000 gallons at the current price, say $2 per gallon. If during those 3 months, the price rises to $3, the airline will have saved $1000. In the same way, the fuel seller assures a fixed price of $2 for three months regardless of the market value, therefore, both parties are protected.

However, today's futures contracts are used to trade with them. Thereby, an investor can trade with the contract with another investor before it expires. And get profits from it.

On December 18, 2017, the CME (Chicago Mercantile Exchange) introduced the Bitcoin Futures contract. It must be understood that futures contracts not only work for physical assets, but also for financial assets. BTCs Futures are based on the price of Bitcoin, so investors can "bet" on the value of the Bitcoin price will be in the future.

Buying a Bitcoin is not the same as investing in a Bitcoin futures contract. In the first, investors must pay for the total price of a bitcoin to have it in their wallet (say $6,300). The latter, full payment of the contract is not required. For CME, to buy a BTC futures contract, only a percentage of its value must be canceled, which is called "deposit margin". For the CME, one BTC futures contract equals 5 Bitcoins. However, the deposit margin is 48%.

Another important concept that should be known is the concept of tick. Tick is the minimum price of fluctuation (the increase or decrease value) of the cryptocurrency; in the case of Bitcoin, the tick represents $5.

Let's see the following example, where we compare the acquisition of a BTC futures contract of CME vs Digitex BTC futures:

So, Bob wants to buy 1 BTC futures contract through the CME, so he must pay the deposit margin, which is 48% of $31,500 ($6,300 x 5), that is, $15,120. John does the same but uses Digitex Futures Exchange, so he only has to pay for 1 BTC futures contract a deposit margin of 20 DGTX ($2 = 20 x $0.10).

You can already see the significant difference when making an investment between Digitex and another exchange. However, let's see now how much each of them can earn in the event that the Bitcoin price rises to $6,320. In this case, both have a profit of 4 ticks (4 x $5 = $20). For Bob, whose BTC futures contract represents 5 bitcoins, his profit will be 4 ticks x 5 = $100. And for John, it's 4 ticks = $20. Nevertheless, John has only invested $2 and has won the whole $20, since the Digitex Futures exchange does not charge any commission. But, Bob will have to pay a fee for buying the 5 BTC and then he will have to pay a fee for the sale of the 5 Bitcoins that represent his 1 BTC futures contract; These commissions fees vary for each exchange, from 0.08% to 0.25% (to give an example)

Suppose that Bob paid a purchase commission of 0.25% x $6,300 x 5 = $78.75. Then he paid another commission for the sale of 0.25% x $6,320 x 5 = $79. In total, his fee is $157.75. So his profit is - $57.75. So Bob should invest in many more BTC futures contract if he wants to make a positive profit.

If by bad luck, instead of rising, the price of the BTC went down, the loss is even greater for Bob. That is why these types of contracts are a double-edged sword, especially for inexperienced investors.

The following image is an example of Bitcoins worth of contracts offered at $10,700 and then sells them at the $10,720, comparing Digitex, CryptoFacilities.com, and GDAX.com

Source: White paper

The following is a table that shows the different futures contract that Digitex has.

CFD: Contract For Difference

Margin and Leverage on the Digitex Futures Exchange

The advantage of trading futures instead of trading directly with the asset is leverage. Since the leverage allows trading with the asset at a much lower price. This is because only the amount of the possible loss incurred in the position must be established.

This is possible because future contracts are promises to buy or sell an asset on a certain date, therefore it is not necessary to pay the entire price in full. This fact attracts more traders since the profits are much higher compared to the amount of possible loss.

It is possible for traders to use a high leverage to duplicate (or lose) all their money.

The amount that is placed to cover the possible loss, as we saw earlier, is known as Margin. There are two types of Margins: the initial, which is the amount of DGTX tokens that must be placed to open a futures contract or position; and maintenance, which corresponds to 50% of the initial margin and is used to keep the position open.

Suppose that the Bitcoin price is $10,000. For a common trader this value is too high to invest in it, however, the price of a future is much more feasible. The price of 1 BTC/USD Digitex futures contract is calculated as follows: dividing the Bitcoin price by the size of the tick. This results in 2,000 ticks equivalent to 2,000 DGTX tokens. In this way the price of 1 BTC / USD futures contract is 2,000 DGTX tokens, this is if you consider leverage. Now, in the following table, you can see the different leverage values along with the values of the initial and maintenance margin.

Source

The position of the trader will be liquidated as long as the initial margin falls below the maintenance margin.

Example 1: For a leverage of 20x, the position of the trader will be liquidated if the margin falls below 50 DGTX and this will happen if the Bitcoin price drops 50 ticks ($250 = $5 x 50), that is if the price falls by below $9,750.

Example 2: For a leverage of 100x, the position of the trader will be liquidated if the margin falls below 10 DGTX and this will happen if the Bitcoin price drops 10 ticks ($50 = $5 x 10), that is if the price falls by below $9,950.

Therefore, the higher the leverage rate, the lower is the initial margin necessary to open a BTC/USD futures contract; by having a lower margin, the trader can make more profit through the small movements of the BTC price, with respect to the margin that has been placed.

In the same way, the losses will also be greater. This is why it is said that leverage is a double-edged sword.

Digitex Features and Benefits

• Zero Trading Fees. As mentioned above, Digitex does not charge any fee for trading. Any trader can buy or sell an order already defined in the order book (taker); or establish a new purchase or sale order in the order book (maker) and will not pay any commission.

• Decentralized Account Balances. The balance of the traders' account is handled by a smart contract in the Ethereum blockchain. Digitex does not have access to the funds of the traders; in this way, the funds cannot be freeze or be retained or get lost by the exchange.

• Highly Liquid Futures Markets. By eliminating commissions per transaction within the exchange, Digitex claims to attract a large volume of traders, since most of the gain on an investment is overshadowed by the cost of commissions (as we saw earlier) and by eliminating these obstacles, will ensure a greater profit for the exchange participants. The liquidity will be further improved through bots called automated market makers (which hold 20% of the total DGTX tokens) programmed to maintain a balance between gains and losses (break even) even in volatile conditions.

• Automated Market Makers. As mentioned in the previous point, these are tradings bots programmed to reach the equilibrium point. They own 20% of all DGTX tokens (200M DGTX) and their main function is to maintain market liquidity.

• Digitex Native Currency. The Digitex exchange system has its own native token called DGTX and it is necessary that participants have these token to make their trading within the exchange. Both losses and gains are measured in DGTX tokens.

• Token Issuance Revenue Model. Digitex will generate profits through the issuance of DGTX tokens and, in this way, it can eliminate trading commissions. First by the ICO and then, two years later, Digitex will issue a small amount of tokens to cover the costs of the exchange, every year.

• Bitcoin, Ethereum & Litecoin Futures. Digitex will have 3 markets for its futures contracts: BTC/USD, ETH/USD and LTC/USD. The tick values are expressed in DGTX tokens, representing a value of $5, $1 and $0.25 with respect to the previous markets.

• One-Click Ladder Trading Interface. The exchange interface of Digitex allows traders to buy or sell orders instantly with a single click, selecting the desired value through the ladder of increased or decreased values with respect to the size of the tick corresponding to the selected cryptocurrency. In the following image, we can observe that 14,444.36 is the price of Bitcoin in dollars and we can appreciate the 5-in-5 scale that spread above and below this value. On the left side, the market type (BTC/USD), the size of the tick ($5) and the value of the tick (1 DGTX).

• Large Tick Sizes. One of the characteristics of the Digitex exchange is the large size of the tick. In the previous image, it could be observed that in the BTC/USD futures contracts, the size of the tick is $5. It can be seen that the price $14,445 is constantly highlighted, to indicate that it is the value selected in the contract. This creates broader offers and positions and reduces market volatility.

• High Leverage. When dealing with futures contract and not directly with Bitcoins or another cryptocurrency, it allows obtaining leverage since traders can sell or buy an asset that they do not own and obtain profits (or losses). Digitex allows up to a leverage of 100x, in which traders can obtain bigger profits (or in the worst of cases losses).

• No Auto Deleveraging. Digitex will not avoid a winning position in a Bitcoin futures contract or another cryptocurrency futures contract for the simple fact of protecting itself from losses due to having too high a leverage. This allows traders not to lose the opportunity to make big profits.

• Sub-Millisecond Order Matching. The trading interface updates prices in real time and is based entirely on a web platform. The engine of Digitex orders can perform matches in less than one millisecond.

• Off-Chain Price Discovery, On-Chain Settlement. The Digitex futures exchange is a hybrid platform, which combines the speed and reliability of a centralized exchange with a decentralized model of balance accounts through smart contracts on the Ethereum blockchain. In this way, traders can take advantage of trading in real time without having to leave their money in the hands of the exchange.

• Decentralized Governance by Blockchain. To eliminate the commissions of the exchange transactions, Digitex will issue DGTX tokens to cover the exchange operations costs. However, the issue is democratically governed by the token holders, that is, the traders. This means that they will decide when and how many tokens will be issued, through the Decentralized Governance of the Blockchain.

• Complete Privacy. Digitex does not use any KYC/AML process, nor will it request any type of identification document for their future participants. In this way, any trader can begin to perform their transactions immediately upon registration.

• Blockchain Driven. Digitex makes use of blockchain technology not only by issuing its native DGTX token but also by storing balance account of traders in decentralized smart contracts. However, it is also using the blockchain as a means to regulate the issuance of tokens by participants and also to use a disruptive technology that did not exist recently: Plasma Protocol.

Digitex Futures Exchange Overview with CEO Adam Todd