US day traders flock to ‘the most dangerous product in crypto’

{"text":[[{"start":8.05,"text":"Retail traders are piling into so-called perpetual futures that were only cleared to trade in the US in May despite consumer advocates branding them “the most dangerous product in crypto”."}],[{"start":18.65,"text":"On certain corners of TikTok, baby-faced investors flaunt the sports cars and villas they claim to have bought with their winnings on these highly leveraged derivatives, which trade all day every day of the year and allow big bets with only a small cash stake."}],[{"start":34.5,"text":"“High leverage is awesome . . .  You see a kind of unbelievable amount of returns in a short period of time,” said Shikhar Sehgal, a 19-year-old college student who pulled his money from prediction markets to trade perpetuals on Singapore-based exchange Hyperliquid last year. "}],[{"start":51.1,"text":"Perps are “100 per cent riskier than spot [trading]”, he added. “You can wake up the next morning and your position just gets liquidated.”"}],[{"start":60.35,"text":"After years of legal clashes with the offshore exchanges that pioneered perps from bases in the Seychelles and Cayman Islands, regulators this year allowed a handful of domestic companies including Kalshi and Coinbase to offer the products for the first time."}],[{"start":76,"text":"The head of the Commodity Futures Trading Commission hailed the decision as a “watershed moment” for US capital markets, as part of the Trump administration’s embrace of financial “innovation”."}],[{"start":87.45,"text":"But for critics, the move encourages yet more speculative, adrenaline-fuelled trading — following the boom in prediction markets — that exposes small traders to losses and makes markets more volatile in times of stress."}],[{"start":null,"text":"

"}],[{"start":100.5,"text":"James Davies, founder of clearing house Derivatives Clearing Network, said the design of perpetual futures “provides no buffer when there is a crisis. It’s just a hot potato. The more of the market that goes perp, the bigger the issue.”"}],[{"start":114.3,"text":"“The demand for short-term retail access to risk is massive, people want to gamble,” Davies added. “But if you ask [retail traders] how much they stand to lose on perps, they can’t tell you.”"}],[{"start":125.39999999999999,"text":"Despite these warnings, perps have exploded in popularity in the US. "}],[{"start":130.2,"text":"Kalshi, one of the first companies to bring them to America, said the derivatives attracted $1bn in trading volume less than a week after launch, making them the company’s fastest growing product on record."}],[{"start":141.85,"text":"Tarek Mansour, Kalshi’s chief executive, called perps “the purest form of trading”."}],[{"start":null,"text":""}],[{"start":146.85,"text":"First conceptualised by Yale academic Robert Shiller in the early 1990s but popularised among crypto traders by BitMex from 2016, perps differ from traditional futures contracts in that they never expire and involve no physical delivery of an underlying asset. Traders simply take an up or down view on the price of assets, such as bitcoin."}],[{"start":168.75,"text":"Periodic payments between longs and shorts anchor perps to the spot price of the cryptocurrencies they track. Offshore venues offer perps with up to 40 times leverage on everything from energy prices to the value of private companies ahead of their initial public offerings. "}],[{"start":184.2,"text":"Crypto perps last year traded about $90tn in volume, up from about $30tn in 2023, according to Bank of America."}],[{"start":193.89999999999998,"text":"Analysts say strong demand for oil perps on Hyperliquid since the start of the Iran war almost certainly contributed to the CFTC’s move to bring perp trading to the US. A company set up by the son of pro-crypto senator Kirsten Gillibrand is lobbying the regulator to allow perps on US stocks."}],[{"start":214.24999999999997,"text":"The regulator’s decision in May to designate crypto perps as futures rather than swaps — derivatives that allow two parties to exchange cash flows referencing different assets — has prompted particular criticism. "}],[{"start":228.79999999999998,"text":"Futures contracts are regulated more lightly than swaps and benefit from favourable tax treatment and looser margin requirements. "}],[{"start":235.74999999999997,"text":"Exchange operator CME Group last month sued the CFTC, alleging that its chair Michael Selig had “with one stroke of his pen” undone regulations introduced in the wake of the 2008 financial crisis. The CFTC called the lawsuit “frivolous”."}],[{"start":252.69999999999996,"text":"Perps are “the most dangerous product in crypto” for retail traders, said Benjamin Schiffrin, director of securities policy at consumer advocacy group Better Markets. “The CFTC . . . seems to have entirely ignored the risks that the product it approved poses,” he added in May."}],[{"start":269.09999999999997,"text":"One of the reasons for their popularity is that perps have attracted enough trading to offer valuable price signals during periods when traditional markets are closed."}],[{"start":279.15,"text":"“Volumes are high enough that over weekends these things provide real price discovery and signals for the Sunday night,” in the US, when stock and commodity markets begin trading in Asia, said Ian De Bode, president at Ondo, a platform that tokenises real-world assets including stocks and Treasuries. "}],[{"start":null,"text":""}],[{"start":297.2,"text":"But the downsides of continuous trading, and perps’ unique design, mean that market reversal can quickly spiral into escalating sell-offs."}],[{"start":306.15,"text":"In traditional markets, investors facing losses will receive an urgent margin call to post extra cash or collateral by a certain deadline to avoid being liquidated."}],[{"start":317.34999999999997,"text":"Perp traders face different risks. Losing bets are instantly liquidated — sometimes with little warning — when they fall below a certain threshold. And winning trades can be “automatically deleveraged” as a last resort to prevent crypto exchanges going insolvent during crises. "}],[{"start":333.99999999999994,"text":"Without the delays introduced by margin calls, the sudden closing of positions can dump more assets into a falling market, further depressing prices and cause more liquidations."}],[{"start":345.49999999999994,"text":"More than 1.5mn crypto traders were liquidated within 24 hours of Donald Trump’s threat on October 10 of fresh tariffs on China, which sent the price of bitcoin crashing about 10 per cent. The global crypto market shed $1.2tn, or 25 per cent, of its value over the following six weeks."}],[{"start":372.7999999999999,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1784461684_1041.mp3"}