DigiOptionsis a decentralized exchange for digital options. It is built on the Ethereum network and the trading currency used therefore is ether. Our digital options are based on Ethereum smart contracts and you trade them via the DigiOptions.com website.
The digital option is an option paying out a fixed amount of one milliether (0.001 ether) if the underlying market price lies within a certain predefined range at the time of expiration. Otherwise nothing is paid out.
To start trading on DigiOptions, you need an ether wallet and an ether wallet enabled browser. For example, you may use the Ethereum mist browser.
If you just want to test DigiOptions, you can create a wallet and simply fill it with test ether from Ethereums testnet 'ropsten'.
Open the DigiOptions website. In the top right corner of the website there is a dropdown menu. This is your wallet account. Upon start it shows 'No account'. Choose “Import account” to import your Ethereum wallet. Now the dropdown menu shows the account address. Clicking on it, it displays the current value in ether.
Adding and Withdrawing Funds
Now you can transfer ether from your wallet to your liquidity in order to trade digital options. Your liquidity is shown right below your wallet account. Click on “Deposit” and transfer some ether to your liquidity. Your wallet balance is reduced and your liquidity is increased by the chosen amount. Click on “Withdraw” in order to transfer ether back to your wallet.
You trade via the market view of the DigiOptions website. The site queries the blockchain to find open markets and it retrieves the best buy (green) and sell (red) offers for each option from the order book. Your net position is shown in the third column, right to the buy and sell columns. To buy or sell a digital option, simply click the buy or sell button next to the range and enter the size and price you wish to trade.
When buying, you have to pay the option price. At expiry, if the chosen range was right, one milliether will be paid out to you for every digital option you bought. Otherwise, nothing will be paid out to you and you have lost the option price you paid.
Instead of waiting until expiry of the option, you can sell it in order to profit from increased prices. To sell your options, click on the sell button corresponding to the range you are invested in. If prices have increased, you will realise a gain. Otherwise, you will realise a loss. After having sold your options, you are not exposed to risk anymore and your net position is zero.
Short selling means, you are selling a range without having bought it before. In that case your net position gets negative. You earn the option price paid to you, but at the same time a margin of one milliether per option is blocked in order ensure the potential final payoff. Usually, just special market participants like market makers are selling short, thereby offering options to the market. If you expect the underlying not to lie within a certain range, you can short sell that range. If the underlyings final price is outside that range, you keep the option prices paid to you and you don’t have to pay anything. Otherwise, you have to pay out one milliether for every digital option you sold.
Liquidity is the amount of ether you are allowed to withdraw. It is calculated over all markets. It corresponds to the deposits reduced by a margin for the maximum loss resulting from your open positions.
If you buy an option, your liquidity is reduced by the paid option price. Vice versa, if you sell an option, your liquidity is increased by the received option price.
If you short sell an option, the maximum loss, being one milliether, is immediately subtracted from your liquidity. This ensures that enough cash is available to pay for the potential final option payoff. Correspondingly, liquidity is increased by the amount of a sure gain. In that special case the maximum loss is indeed a sure gain.
As a starting offer, there is no trading fee. In future, there will be a trading fee of five percent on each option. That is, when buying an option from the order book, you have to pay in addition five percent of the option price. The trading fee is subtracted from your liquidity. When selling an option, you receive the amount reduced by five percent.
In addition, when accepting a buy or sell offer from the order book, a transaction fee has to be paid. This is the small gas price required by the Ethereum blockchain. The transaction price is subtracted from your ether wallet. Therefore make sure to always have a certain ether amount in your wallet.
There are no costs for adding or withdrawing funds. DigiOptions is built to be fair and transparent.
We illustrate trading with some examples. For these examples starting liquidity is 1000 milliether. We take into account the trading fee, affecting liquidity, and the transaction gas price, affecting the wallet.
Example 1. You buy 1000 digital options on range no. 1 for the price of 0.1 milliether each, totalling 100 milliether. The trading fee is five percent of this amount, corresponding to 5 milliether. Your liquidity reduces to 1000 – 100 – 5 = 895 milliether. Say, the option price for that range doubles to 0.2 milliether and you decide to sell all you options and realise a gain. Liquidity increases by 200 – 10 = 190 milliether after trading fees. Your final liquidity is 895 + 190 = 1085 milliether. So you made a gain of 85 milliether after trading fees. In addition, you have to pay twice the transaction gas price from your wallet since you first bought and then sold 1000 options.
Example 2. You short sell 1000 digital options on range no. 1 for the price of 0.1 milliether each. You get 100 milliether, pay a trading fee of 5 and a margin of 1000 milliether is blocked as potential loss on expiry. Your liquidity drops to 1000 + 100 – 5 – 1000 = 95 milliether. Unfortunately, the option price for that range increases to 0.2 milliether. You decide to limit your loss and buy 1000 options of that range. You have to pay 200 milliether and a trading fee of 10 milliether. Since you do not own any options on that range anymore, the blocked margin is released. Your liquidity increases by – 200 – 10 + 1000 = 790 milliether. Your final liquidity is 95 + 790 = 885 milliether. In total, you made a loss of 115 milliether, trading fees included. In addition, you have to pay twice the gas transaction price from your wallet since you made two transactions.
Example 3. Suppose you already bought 1000 options on each of the ranges 1 to 4. No margin is blocked, since there is no potential loss. Now, in addition, you also buy 1000 options on range no 5 for the price of 0.1 milliether each. You pay 100 milliether and a trading fee of 5 milliether. Since now you own all five ranges you will make a sure gain of 1000 milliether. This gain is immediately credited to your liquidity. Your liquidity rises by – 100 – 5 + 1000 = 895 milliether. In addition you have to pay the gas price for the transaction.
As an underlying virtually any price ca be used, e.g. the BTC/USD (Bitcoin/US-dollar) quote. More underlyings are continuously added to DigiOptions.
The prices of the underlying at expiry of the option are independently verified by the signing authority FactSigner, acting as a source of truth for smart contracts.
We will offer an application programming interface (API) in order to enable automated trading. You will be able to code your own trading rules and execute them automatically. The API will also enable you to play the role of a market maker and place offers in the order book that can be accepted by platform users.
Private Data and Security
You do not need to register at DigiOptions.com. The only private information used by your browser is the private key of your wallet. For security reasons we recommend to use the Ethereum mist browser. Currently we do not support MetaMask, so using another browser with the MetaMask plugin is not a viable option yet. For testing purposes with test ether only, you may use DigiOptions internal account administration.
DigiOptions is a totally decentralized operation. There is no one running the platform. It is defined via Ethereum smart contracts only. From a legal point of view it is neither an exchange nor a multilateral trading facility. Therefore, DigiOptions is not subject to supervision of a national authority.
The Solidity code for the smart contract can be found in the GitHub repository. It has been compiled and deployed to the Ethereum network. When the smart contract processes an order, it will verify that the signature is valid, the order has not expired, there is enough remaining volume in the offered order and both parties have enough liquidity available to cover the trade. If these things are true, the smart contract will record the trade.