Review: Bitfinex

Bitfinex is a trading platform that exchanges five pairs at current: BTC/USD, LTC/BTC, LTC/USD, DASH/BTC, and DASH/USD. It’s different from an exchange in that it allows you much more freedom of action, and leverage (for the non-Dashcoin pairs). The leverage is limited at 3.3:1, but that’s still quite a bit for such a volatile marketplace. The freedom of action comes in two ways; first, by allowing limit, market, stop, trailing stop, and fill/kill orders. Second, by allowing you to acquire (borrow) or offer (lend) liquidity on a free market contract for difference exchange. How it works is pretty simple. Here’s a snapshot of the USD borrow/lend page from January 21st, 2014:

 

USD bid/ask

On the left are offers. On the right are bids. When you accept or offer liquidity, you choose the maximum time frame and the quantity, and the system matches your orders. They also utilize something called a flash return rate; this is essentially “one-click” lending. If you enable it, your offer goes in at the (constantly changing) flash return rate, and is more likely to fill quickly. Why is this useful to us? Well, first and most obviously, it lets you go long on leverage. You borrow USD through a contract for difference, buy BTC, wait for a price increase, sell it back, return the USD + interest, keep profits. It also lets you do something you CAN’T do most places: SHORT Bitcoin and Litecoin. Here’s a snapshot of their Bitcoin liquidity page:

Bitcoin ask/bid

You can borrow Bitcoin at a pretty incredibly low rate (and Litecoin similarly cheaply) [EDITOR’S NOTE: This article was published in January. Rates are different now.], sell them, re-buy, close short, profit. If you’re looking for somewhere to short Bitcoin or Litecoin, or to use leverage, or to lend your spare USD, BTC, or LTC out, Bitfinex is the place for you to be. Another benefit of Bitfinex is a very nice fee structure. They run a partial maker-taker system, where the market maker ends up paying between .1% and 0(!)%, and the taker pays .2%. I believe they’re able to offer these fees because of the unique free market leverage system they utilize. By moving their risk to the lenders, they lower fees. They also pick up a percentage of the interest (15%), which again helps to keep their advertised fees down while keeping profits up. I’m a big fan of their business model.

The Bitfinex site is laid out in three parts: Exchange, Margin Trade, and Total Return Swaps.

The Exchange section is there for you to trade your currencies for alternative ones, permanently. It’s fairly simply to use. You can exchange Dashcoin, Bitcoin, Litecoin, and USD here.

Margin Trade is the heading given to the section that allows leveraged trading. In that section, you have one of two options for taking advantage of the leverage they offer. First is to simply place orders of whatever size you would like, up to the amount indicated by the “Tradable Balance” section on the right-hand side. If you do this, funds will automatically be borrowed for you at the lowest offered interest rate. Alternatively, you can preemptively reserve the funds you need for leverage in the final section: Total Return Swaps.

Total Return Swaps is the section pictured above. It lets you lend or borrow funds as needed, in a fairly simple interface.

Overall, Bitfinex provides an extremely simple interface for some fairly high-powered trading.

Details:

  • 3.3:1 leverage, limit/market/stop/trailing stop/fill or kill, BTC/USD, LTC/BTC, LTC/USD, DASH/USD, DASH/BTC
  • Low fees (.1%-0% for makers)
  • Offers lending options, offering leverage is a free market
  • Relatively good customer service, but lacking in technical assets
  • API is usable but slightly weird with some minor occasional glitches
  • Based in Hong Kong

Pros:

  • I like their business model a lot–they offer lower fees by creating an alternative revenue stream: fees on interest paid to lenders
  • Easy access to 3.3:1 leverage
  • A relatively clean and simple layout, although the writing needs to be redone by a native English speaker
  • Fairly high liquidity–an excellent place for small-time traders or institutional trading
  • Deeply connected with some of the biggest and best in the Bitcoin exchange world, such as Bitstamp

Cons:

  • Decent Litecoin liquidity, but still probably not enough for really large customers
  • Lack of trust in technical programming of exchange–Bitcoinica, the exchange whose code off of which Bitfinex is based, was imperfect.
  • Moderate learning curve. Their website is different, and it takes a week or so of getting used to. Now that I’m used to it, it’s no problem, but at the beginning it took me a little. Their help documentation isn’t worse than other sites, but it’s about par for the course for Bitcoin exchanges.
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