Coinbase is launching a function on its international and advanced exchanges for users to trade futures contracts on tokens that are yet to launch.
This launch will allow traders to participate in “pre-launch markets,” which are the price discovery of upcoming projects, all within Coinbase’s platform. Eligible traders can open long or short positions on 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 upcoming launch, even if the token launch date isn’t released yet. Institutional users have to 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 yet to launch. Once a project or underlying token is launched on relevant spot exchanges, these contracts transition into standard perpetual futures contracts on Coinbase.
In futures trading, two parties agree to buy or sell a commodity, security, or asset at an agreed 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, especially in pre-launch markets
Users will exchange these futures contracts for tokens that are not yet available. The risk that the underlying token may never be launched is beyond Coinbase’s control. Furthermore, Coinbase may remove the tokens after they have officially been launched.
“Please note that positions for pre-launch markets will not be assigned to participants of our Liquidity Support Program (LSP). As such, these markets will be at higher risk of Auto-Deleveraging compared to standard perpetual futures”
If this occurs, the pre-launch market may not be able to transition into 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 with a lot of risk.
Essentially, traders can “place bets” on token projects that could never launch or be 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 parameters
Coinbase has implemented strict limits on leverage, positions, and open interest for these markets.
Pre-launch markets will have the following characteristics: an initial margin of 50% (Max 2x Leverage) and a position limit size of $50K notional instrument limit.
Per 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.”
