Goldman Sachs, one of the largest and most renowned investment banks in the world, is considering a partnership with crypto derivatives broker FTX to offer access to these instruments to its clients in the United States.
According to sources familiar with the matter, Goldman Sachs could act as the designated “futures commission merchant” for FTX in the United States. The investment bank’s specific functions would include introducing new customers to the products and trading derivatives directly through its crypto desk.
Previous reports pointed to both firms being engaged in negotiations to push forward FTX’s initial public offering (IPO). FTX’s American subsidiary – FTX US – recently started offering zero-commission trading services for stocks and exchange-traded funds (ETF) listed in the United States as the company headed by Sam Bankman-Fried keeps expanding its portfolio of available instruments for its customers within the country.
According to industry professionals, this effort would allow the firm to increase its customer base in the country faster via the offering of a traditional product that most investors are familiar with to then start offering access to cryptocurrencies and their corresponding derivatives.
In regards to this new offering, the President of FTX.US, Brett Harrison, told CNBC that they would like to become a one-stop-shop type of broker for retail investors.
“They’d like to be able to have one holistic experience where they can invest in multiple asset classes from a single app and experience. That’s what we’re hoping to provide by combining stocks and crypto into the same application for our user”, Harrison stated.
Meanwhile, Goldman Sachs has been expanding its portfolio of crypto-related products and services recently. Only a few weeks ago, reports indicated that the investment bank completed its first over-the-counter (OTC) crypto trade via Galaxy Digital.
The transaction was a non-deliverable option (NDO) for Bitcoin (BTC). Details in regards to the size or price at which the transaction was executed were not disclosed at the time.
FTX Ambitions in the US Market Persist
The American subsidiary of FTX has been engaging in discussions with the Commodity Futures Trading Commission (CFTC) for a while now to be able to act as the direct intermediary for the crypto derivatives products the firm offer.
By upgrading its license to operate as such, the company claims that it will be able to monitor the value of the collateral pledged by its customers in real time. This would reportedly reduce the firm’s systemic risks as the crypto market is well known for being highly volatile.
What are crypto derivatives?
Derivatives are contracts whose value is derived from the price of the underlying asset. This underlying asset can be a stock, cryptocurrency, bond, or any other financial instrument whose price can be easily and transparently quoted.
The most common derivatives in the financial markets are options and futures. Futures are instruments that give the holder both the right and obligation to take delivery of the underlying asset at a certain price once the contract expires.
These instruments were conceived primarily to help corporations in reducing price volatility for the raw materials they typically use as they can purchase a futures contract at the current price and take delivery later.
However, futures have also become an instrument for traders to speculate on the fluctuation in the price of their underlying asset. Some of the most common futures include index, commodity, and currency futures.
On the other hand, options are a different type of derivative that gives the holder the right, not the obligation, to buy (call option) or sell (put option) the underlying asset at a pre-defined price once the contract expires.
Your capital is at risk.