Andrew Munro is the global cryptocurrency editor at Finder. After previously writing about insurance and other areas, he now covers the latest developments in digital assets and blockchain and works on Finder's comprehensive range of guides to help people understand cryptocurrency.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
All trading involves risk. Losses can exceed deposits.
Spread bets and CFDs are leveraged products and can result in losses that exceed deposits. The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.
Bitfinex margin trading is financed peer-to-peer on the platform. Users can trade with up to 3.3x leverage or offer funding to other users for a potential profit.
Margin trading funding is done through an open marketplace and with the funds a user deposits onto the exchange. Users can choose to either automatically match with open funding offers or to place bids for funding.
A user can accept a financing offer for up to 70% of the value of a cryptocurrency purchase. They are not under any obligation to use the financing, may repay the financing plus interest at any time without penalty and may replace existing financing with a more favourable offer.
Users can also provide margin funding to others without necessarily doing any trading themselves.
Jack deposits $30,000 into his Bitfinex account and then wants to buy as much bitcoin as possible with the maximum amount of financing possible.
Jill is offering the best financing rates, so Jack gets financing from Jill.
The maximum amount of bitcoin he can purchase with his $30,000 deposit is now $100,000 because 70% of the purchase is equal to $30,000, the amount Jack deposited. This is roughly equivalent to 3.3x leverage.
If the price of bitcoin goes up
Jack's in luck. He might sell the bitcoin and pocket the full profits minus the $70,000 owed to Jill plus the cost of outstanding interest.
Let's say Jill charges 2.5% per day in interest ($1,750 per day in this case) and Jack held the financing and bitcoin for 2 days during which the price of bitcoin rose by 20%, then he decides to sell it.
Jack's bitcoin was worth $120,000 when he sold it and he owes Jill $70,000 plus a total of $3,500 in interest.
With financing: When everything's settled Jack's $30,000 deposit turned into $46,500.
Without financing: If he had done everything the same, except without Jill's financing, his initial $30,000 deposit would only have turned into $36,000.
If the price of bitcoin goes down
If the price of bitcoin falls too much while Jack is borrowing money from Jill, he might be liquidated.
Specifically, if Jack's share (the $30,000 that he deposited) falls to 15% or less of the total financed bitcoin purchase, the bitcoin will automatically be sold on Bitfinex to ensure Jill gets her money back.
Let's say he gets the same 2.5% per day loan and buys the same amount of bitcoin as before, except this time bitcoin prices fall.
In line with Bitfinex's 15% rule, bitcoin prices would only need to fall by 12.5% before Jack gets liquidated.
This is because a 12.5% drop would mean Jack's $100,000 bitcoin purchase is now worth $88,500 but Jack still owes Jill $70,000 in principal and $3,500 in interest.
$88,500 minus $73,500 is $15,000 so Jack's remaining share of the deal is 15% of the total. Now that prices have hit this point the entire bundle of bitcoin is sold off, Jill is paid back in full and Jack is left with only $15,000
With financing: Jack's $30,000 deposit was cut in half to $15,000 even though bitcoin only fell 12.5%.
Without financing: Jack's $30,000 of bitcoin would still be worth $26,250.
Bitfinex's financing system can magnify both the risks and rewards for people who trade on margin the way Jack did, as well as serve as a comparatively safer source of revenue for people like Jill who provide the financing.
As Jack's experience with falling bitcoin prices illustrates, margin trading can be much higher risk for users.
And as Jill's experience with Jack illustrates, providing financing to other Bitfinex users can be relatively safe compared to using it.
How fast will my funds be available?
Cryptocurrency deposits will typically arrive after the appropriate number of confirmations, which varies depending on the cryptocurrency and may change over time. It will typically be a few minutes.
Fiat deposits may take up to about two weeks from start to finish, including account reviews and processing. To get started you will need to send an expression of interest in making a fiat deposit and Bitfinex will commence an account review before sending you the details.
Up to 10 days for fiat
Cryptocurrency withdrawals will typically arrive within 12 hours.
Fiat withdrawals may take up to 10 business days for regular wire withdrawals. Express wire withdrawals (1% fee) should arrive within 24 hours.
To move funds faster, ensure you take steps such as applying 2-factor authentication (2FA) and meeting other security requirements.
Bitfinex order types
Bitfinex offers the following order types:
Limit: An order to buy/sell at a specified price or better.
Market: An order to be executed ASAP at current market prices.
Stop: An order to close a position once the market reaches a set price.
Trailing stop: An order to close a position once the market shifts by a certain amount relative to one's current position.
Fill or kill: An order that's either filled in its entirety at the set price or cancelled.
One cancels other: A pair of orders stipulating that one cancels the other if it executes.
Post only: A limit order that will not match with other posted orders, ensuring that the creator of a post-only order will only pay the maker fee.
Hidden order: An order which is not visible in the order book and so can be filled but does not influence other market participants.
Shorting on Bitfinex
The financing system also lets users go short on Bitfinex: betting that a cryptocurrency's prices will fall.
This can be done through the finance marketplace and works similarly to the regular Bitfinex financing except in reverse.
Essentially, when you opt to go short, transactions are settled with the borrowed cryptocurrency (the up to 70% that can be financed) rather than your own (the up to 30% funded by your own deposit).
The result is that when prices go down your own share of the total increases and you profit, while the counterparty's decreases.
How do I create an account at Bitfinex?
Prior to signing up, take note of the conditions Bitfinex lays out. Note that it's a professional platform intended for use by experienced traders, that a US$10,000 deposit minimum is required to start trading and that verification may be an extensive process.
You can make either a cryptocurrency or a fiat deposit. If depositing fiat, you will have to register an expression of interest in the deposit first, including the amount and the currency you would like to deposit.
Only then will Bitfinex provide the relevant banking details. It may take up to two weeks to complete a fiat deposit from start to finish. Cryptocurrency deposits will typically be much faster.
You will also notice there are three wallet options you can send a deposit to. You will need to choose the one relevant to you.
Exchange: This wallet is used to buy and sell crypto on the Bitfinex markets. It's the primary wallet.
Margin: This wallet is used for margin trading and holds your funds while you want to go short or open leveraged long positions.
Funding: This wallet is used for providing margin funding or financing to other traders.
Once you've made a deposit it might be a good idea to take a tour of the platform to acquaint yourself with its features, to customise it to your liking and generally familiarise yourself with Bitfinex.
Regulation. Bitfinex is registered in the British Virgin Islands with headquarters in Hong Kong and it has previously taken steps to ensure it complies with applicable regulations to the necessary extent. For example, US-based customers are barred from the exchange for regulatory reasons.
Verification process. Fiat currency deposits and withdrawals are for verified users only. Bitfinex describes it as a "standardized compliance measure" consisting of an online questionnaire, supporting documentation such as passport and driver's license and a signed declaration confirming the accuracy of the submitted information.
Security features. Bitfinex supports 2FA and strongly recommends everyone use it. Users can take further control of their security with features such as IP whitelists and a range of customisable security and self-account-audit measures. Approximately 99.5% of user funds are maintained in an offline multisignature hardware wallet with 7 separate physical keys, known as hardware security modules, at least 4 of which are required to unlock it. It maintains an extensive security team, employs comprehensive DDoS protection and performs regular penetration testing.
Bitfinex has an eventful history, even by cryptocurrency standards.
It was founded in 2012 and was first hacked in 2015 when 1,500 bitcoin was stolen. This relatively minor heist quickly paled in comparison to a monumental hack in 2016 when over 100,000 bitcoin worth US$72 million at the time disappeared from the exchange, causing prices to plunge by about 20%.
Following the incident, Bitfinex socialised the losses among its users, cutting people's account balances by up to 36%. This "haircut" was ostensibly applied to all its users, although credible sources suggest that Coinbase, which had funds on Bitfinex at the time of the loss, was able to strongarm Bitfinex into a more favourable deal.
Bitfinex still reimbursed its users though, as the bitcoin taken from users in the haircut was replaced with tokens that track bitcoin prices. Bitfinex purchased these tokens back from users over the next year.
Bitfinex has also found itself at the centre of price-manipulation allegations, largely thanks to its close ties to the even more opaque Tether (USDT) cryptocurrency. Tether and Bitfinex share much of the same management. These price-manipulation allegations have never been settled.
During its tenure as one of the world's most trafficked cryptocurrency exchanges, Bitfinex has been subject to allegations of just about any kind imaginable, from insolvency to money laundering to theft, although these are mostly just rumours with scant evidence.
The most recent oddities in Bitfinex's storied history are centered around its unconventional banking arrangements. It has had a slew of accounts shut down and for a time was reportedly doing its banking under the radar through shell-like companies. Those tumultuous times eventually culminated in the so-called "distributed banking solution" that Bitfinex uses today. This system is why it can sometimes take so long to make fiat deposits onto Bitfinex.
Despite all the controversies, Bitfinex is by the numbers one of the world's most popular and liquid cryptocurrency exchanges, with entirely real and unadulterated volume according to industry experts.
In a nutshell
Advanced trading: A high degree of customisation and advanced trading options can be found at Bitfinex.
Deep liquidity: Bitfinex has some of the world's most liquid cryptocurrency markets.
Additional features: Margin trading, shorting and the peer-to-peer financing markets make Bitfinex a unique option for experienced traders.
For advanced users only: Bitfinex is a professional platform for professional traders.
Slow and potentially expensive: Verification can take weeks, as can deposits. Large or overly frequent wire withdrawals can also incur hefty fees.
Controversial: Bitfinex is an opaque and controversial exchange with an extensive but not entirely spotless track record.
Bitfinex supports users from all countries, with a handful of exceptions, most notably the United States.
Yes. The Bitfinex app can be downloaded on Android and iPhone.
Bitfinex conducts a thorough verification process, as is typical of more-compliant cryptocurrency exchanges.
This includes getting some personal information and identification from you.
Bitfinex offers an online help centre and has active customer support on a range of social media channels.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
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