Coinbase to offer token options trading ahead of launch

Coinbase is launching a feature on its international and advanced exchanges allowing users to trade futures on tokens that have not yet been launched.

This launch will allow traders to participate in “pre-launch markets,” which are price discovery of upcoming projects, all within the Coinbase platform. Eligible traders can open long or short positions in an unlaunched token with up to 2x leverage, potentially leading to high returns.

Users will be able to buy and sell a token before its next launch, although the launch date of the token is not yet published. Institutional users must use Coinbase International Exchange to participate in these pre-launch markets, while eligible retail traders can access them through Coinbase Advanced.

Pre-launch markets

Pre-launch markets allow traders to trade perpetual futures contracts for tokens that have not yet been launched. Once a project or underlying token is launched on the relevant spot exchanges, these contracts transform into standard perpetual futures contracts on Coinbase.

Pre-release markets differ significantly from standard perpetual futures markets because they involve unique considerations and present high risks. Exercise caution and do not negotiate contracts unless you fully understand the associated risks.

– Coinbase International Exchange 🛡️ (@CoinbaseIntExch) June 17, 2024

In futures trading, two parties agree to buy or sell a commodity, security, or asset at an agreed upon price and date in the future. These contracts are legally binding and are traded electronically on exchanges – in this case, Coinbase.

Risks of Options Trading, Particularly in Pre-Launch Markets

Users will trade these futures contracts for tokens that are not yet available. The risk that the underlying token never launches is beyond Coinbase’s control. Additionally, Coinbase may delete tokens after their official launch.

“Please note that positions for pre-launch markets will not be allocated to participants in our Liquidity Support Program (LSP). As such, these markets will be at higher risk of self-deleveraging than standard perpetual futures contracts. »

If this happens, the pre-launch market may not be able to transition to a standard futures market and may need to be suspended or removed from the platform. Coinbase also reserves the right to temporarily or permanently suspend trading or remove markets from its platform at any time, leaving traders facing numerous risks.

Essentially, traders can “bet” on tokenized projects that could never be launched or accepted by Coinbase.

Given the high-risk nature of pre-launch markets, these markets are more prone to lower liquidity, higher volatility and increased liquidation risk.

Coinbase Settings

Coinbase has strict limits in place on leverage, positions, and open interest for these markets.

The pre-launch markets will have the following features: 50% initial margin (2x maximum leverage) and a position limit of $50,000 notional instrument limit.

According to Coinbase, “It is crucial to exercise caution and refrain from trading contracts that you are unfamiliar with or do not fully understand the associated risks.”