Coinbase to offer pre-launch token options trading

Coinbase is launching a function on international and developed exchanges for users to trade futures contracts on tokens that have not yet been released.

This launch will allow investors to participate in “pre-launch markets,” which are price discovery of upcoming projects on the Coinbase platform. Suitable investors can open long or short positions on an unreleased token with up to 2x leverage, potentially leading to high returns.

Users will be able to buy and sell a token ahead of its upcoming launch, even if the token launch date has not yet been published. Institutional users must 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 investors to trade perpetual futures contracts for tokens that have not yet been launched. Once a project or underlying token is launched on the relevant spot exchanges, those contracts become standard perpetual futures contracts on Coinbase.

Pre-launch markets differ significantly from standard perpetual futures markets; It carries unique considerations and carries high risks. Be careful and do not trade contracts unless you fully understand the risks involved.

— Coinbase International Exchange 🛡️ (@CoinbaseIntExch) June 17, 2024

In futures trading, two parties agree to buy or sell a commodity, security, or asset at an agreed upon price and date in the future. These contracts are legally binding and 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 do not yet exist. The risk that the underlying token may never launch is beyond Coinbase’s control. Additionally, Coinbase may remove tokens after they are officially launched.

“Please note that positions for pre-launch markets will not be assigned to participants in our Liquidity Support Program (LSP). Therefore, these markets will face Automatic Deleveraging risk compared to standard perpetual futures.”

In such a case, the pre-launch market may not transition to the 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 investors at great risk.

Essentially, investors can “bet” on token projects that may never be launched or accepted by Coinbase.

Given the high-risk nature of pre-launch markets, these markets are more prone to lower liquidity, higher volatility and increased liquidity risk.

Coinbase parameters

Coinbase imposes strict limits on leverage, positions, and open positions for these markets.

Pre-launch markets will feature: an initial margin of 50% (Maximum 2x Leverage) and position limit size of notional instrument limit of $50,000.

According to Coinbase, “It is very important to exercise caution and avoid trading contracts that you are not familiar with or do not fully understand the risks involved.”