Binance Launched New “Vanilla” Options Contract Termed European Style

Binance launched new “vanilla” options contract for its users to issue options themselves and they will also be able to buy BTC at an agreed-upon price and then trade it for other currencies so let’s find out more in the latest Binance news.

Crypto exchange Binance announced a new type of BTC options contract that simplifies things for traders and allows them to issue their own contracts for the first time. Dubbed as the “European Style Vanilla Bitcoin Options” they allow users to purchase BTC at an agreed-upon price before the expiry of the contract then trades it for other crypto assets. As Binance launched new “Vanilla” options, users noticed that it is quite different from the American-style options contract that the exchange launched back in 2020 in April which allowed traders to purchase BTC at any point up until the contract expires.

#bitcoin options grew quickly this year with total open interest set to exceed $10bln in 2021 pic.twitter.com/QbccTVii8n

— skew (@skewdotcom) December 24, 2020

European-style contracts are named vanilla because they are less “exotic” than the complex American contracts according to the company that opened its doors in China before the government decided that the exchange was too exotic for the country’s planned economy. Binance claimed that these EU-style contracts protect traders from volatility so investors are able to sell them at a specified price within an agreed time frame and they are also settled in the US-dollar pegged USDT stablecoin.

The European-Style contracts come with a bigger risk and potential rewards. While Binance was the main issuer of the American-style contracts, traders can issue these options themselves. This means that the traders can set their own rules as there are no limits on the size of the contracts while the issuer has sufficient collateral. This also means that the buyers could pay a bigger premium for the contracts but also that they are obliged to fulfill the contract even if the price reached trillions of dollars.

#Binance Launches Vanilla Options Trading Platform

➡️ https://t.co/YqAuuDuhdA pic.twitter.com/xMoH6FiC93

— Binance (@binance) December 28, 2020

Binance explained that it is launching the new contracts to encourage investments from the institutional investors as the exchange already hit $1 billion in daily volumes for options trading over the past month. BTC options are a popular way to invest in cryptocurrency and it is expected that the open interest in BTC options will surpass $10 billion next year according to the data from the crypto analytics company Skew.

A BTC market full of options contracts is potentially a volatile one and if the price of BTC increases by the time contracts expire, the traders could want to dump some of the cash out on their investment. If the traders dump everything at once, BTC could drop. About $2.3 billion in BTC options contracts expired a few days ago and unleashed all of that BTC on the market.