Phemex Is Building Crypto’s Fastest Growing Exchange

Share this article

Phemex launched in November 2019 to provide crypto users with high-speed, reliable financial infrastructure that is on par with trading engines in legacy finance.

Crypto exchanges need scalable infrastructures to serve the needs of their many users who submit thousands of orders per second. Phemex has no shortage of this expertise in its core team.

Founder and CEO Jack Tao previously served as a vice president at Morgan Stanley, overseeing benchmark execution strategies (electronic trading). During his 11-year stint at the global investment bank, Tao built an order router and trade engines for APAC markets.

Tao recruited eight of his former Morgan Stanley colleagues to help him build Phemex, which has grown from strength to strength into one of the fastest-growing exchanges in crypto.

In terms of products, Phemex offers customers both derivative perpetual contracts and spot market pairs.

Tradeable contracts include BTC, ETH, XRP, LINK, XTZ, and LTC. Phemex also has a derivative contract for gold, making it one of the first crypto derivative exchanges to offer a legacy product. The exchange lets users trade with up to 100x leverage for BTC and gold, and 20x for the others.

For spot trading, Phemex has BTC, ETH, XRP, LINK, ADA, TRX, and ONT listed as of the time of writing.

Trading on the exchange is a pleasant experience. Users are treated with a sleek UI and all the necessary data to make decisions⁠—order book depth, recent trades, and a TradingView integration to watch real-time price fluctuations.

Stop losses and take profit orders are easy to navigate and can be submitted on the back of either a market or limit order.

Stop losses, in particular, are essential for any crypto exchange⁠—both spot and derivatives—so users can exercise diligent risk management. Despite this, there are still prominent exchanges that make submitting stop losses a hassle for less-experienced traders.

Phemex has its own fiat payment gateway, compatible with VISA, Mastercard, and ApplePay, amongst others. Users can buy crypto with fiat using this option. However, there is no functionality to withdraw fiat currencies to one’s bank account.

Two features push Phemex’s products to a broader range of customers. The first is functionality for sub-accounts. This allows a trader to earmark a fixed amount of funds for specific activities. Sub-accounts enable a trader to take both a long and short position simultaneously and allows for better flexibility in managing trades.

With a sub-account, a trader can figure out their strengths and weaknesses by using different strategies on separate accounts. For example, Alice has one account to swing trade and another for scalp trades. Three months later, the ROE on her swing trading account is positive, whereas the scalp trading account has seen a negative return.

This makes it evident that Alice is a much better swing trader, giving her the necessary insight to optimize returns.

A simulated trading system is the second important feature. For new traders, who are just learning the rails, simulated trading, or paper trading, is essential in understanding the nuances of trade management.

It gives newbies a platform to gain first-hand experience on how the market moves and when to use a particular type of order. It is also useful for experienced traders who want to test a new strategy in real-life market conditions.

Lively Growth in a Muted Market

Phemex has captured a significant share of crypto exchange growth since launching but has done especially well in the aftermath of Black Thursday.

Open interest for the BTC pair is not significant compared to the likes of Binance and BitMEX, averaging just $14.36 million a day from March 2020 – July 2020. But from a growth perspective, Phemex is unrivaled.

During a period where BTC futures total open interest grew from $3.63 billion to $3.85 billion (6.1%), Phemex’s open interest for BTC grew from $7.59 million to $19.64 million (258.76%).

The exchange’s real growth is visible in its trading volume. In December 2019, Phemex’s first full operational month, its BTC/USD derivative volume hit $282 million. The very next month, this figure grew over 10x to $3.317 billion.

March 2020 was a lousy month for Bitcoin, but Phemex capitalized this market volatility to facilitate a record monthly volume of $14.72 billion on its BTC/USD contract.

Over the last month, the BTC contract has averaged over $200 million of daily volume.

While this doesn’t seem like much, it’s a huge number for an exchange that’s less than a year old, especially in light of BTC’s lack of volatility for the last two months. Phemex has been averaging higher trading volumes than the likes of Kraken and Deribit futures in July 2020.

Business Model

Phemex has a rather interesting model to create revenue. For derivatives, Phemex has flat fees across its various contracts. But for its spot markets, it introduces a subscription plan. Traders pay a fixed monthly fee and can execute as many spot trades as they want without an additional fee.

This service is similar to that of discount brokers in the stock market. Discount brokers are entities that execute trades at a lower price than full-service financial brokers. They often offer plans that allow traders to make an unlimited number of trades for a fixed monthly fee.

Spot markets are only open to premium subscribers. The plans are priced at $9.99 a month or $69.99 a year. While an upfront cost may be daunting at first, the potential savings are far greater than the cost.

Binance’s average spot trading fees range between 0.05% and 0.1%. For those who trade with size, this makes a significant difference. The fee on a $70,000 trade on Binance spot market would pay for a yearly Phemex subscription.

For derivatives, maker and taker fees are -0.025% and 0.075%, respectively. For the uninitiated, a maker is a trader that sets limit orders or puts liquidity into the orderbook while a taker is someone that takes liquidity out of the orderbook.

This means users can earn a small fee rebate by adding liquidity to the orderbook, rather than being a taker. Say Alice sets a limit order for $15,000, and Bob matches her order. While both traders put in $15,000 in trades, Bob will pay a $11.25 fee while Alice will earn $3.75 since she’s the one who added liquidity that needed to be matched.

Incentivizing more users to switch over to Phemex is another way to drive more revenue. Phemex launched its all-star program for referrals. The exchange offers 50% of fees as a commission to referrers, putting it at the top of the referral commission chain in crypto.

High commissions and multi-level benefits give Phemex’s users a financial incentive to onboard acquaintances. Several high profile traders on Twitter swear by Phemex⁠— the incentive is one part, but the high-efficiency trade engine is what gets them to stay.

All in all, Phemex is growing at a rapid pace and can challenge top tier exchanges in the foreseeable future if the exchange continues to acquire users at the current rate.

Disclosure: Phemex is Crypto Briefing’s preferred derivatives partner.

Share this article