Umbrel Bitcoin Derivatives Trading Guide
So you have your sats nice and secure through Umbrel an now you want to be a degenerate and risk them in derivatives trading?
Well here is the guide for you!
As of Umbrel v0.4.17 there are 3 apps that allow you to derivative trade your sats: LNMarkets, ItchySats and Kollider. Each has a different approach and this guide will instruct you in how to start trading.
Scope of this guide
- brief explanation of each app
- how to connect to, fund and execute a trade in each service through Umbrel
- initial pros and cons of each service
Not included in this guide
- tips on how to profitably trade
- technical explanation of each app
I do not condone or encourage trading. This guide is simply to instruct you how to utilize your Umbrel to trade in Bitcoin derivatives using the apps that have been adapted to Umbrel. Trading is highly risky and should be taken seriously. If you choose to trade, use some best practices to limit risk to your funds. Here are some basic rules that you should abide by:
This guide is not comprehensive and will likely need frequent updates with software changes. I have limited trading experience with these apps in Umbrel.
This guide is cross posted on bitizen.consulting.
Guide software version: Umbrel 0.4.17
LNMarkets is a trading platform that prides itself in being lightning network native and has been operating since late 2019. Both testnet and mainnet implementations are available. LNMarkets is most similar to a typical centralized trading platform where deposits are made into your trading account and you can withdraw funds from your trading account. The advantage of this platform, however, is that it is very private via the lightning network. LNMarkets has an officially integrated Umbrel app as of Umbrel v0.4.4.
Accessing the LNMarkets app through Umbrel will lead to your account page. A username is automatically generated so no account setup is required. This username depends on your node keys and uses LNURL-Auth for authenticaion. Technical details of LNURL-Auth is not within the scope of this guide, but for practical purposes you can close all lightning network channels with funds still on your lnmarkets account and you will still be able to access those funds based on your node keys.
Depositing and Trading
Here you will be able to Deposit and Withdraw your funds through the Umbrel app. Funds can only be deposited and withdrawn through the lightning network. Ensure you have a route to the lnmarkets lightning node and capacity to deposit. Clicking "Trade" will log you in and redirect you to lnmarkets.com with your browser, not Umbrel IP. Once you fund an account and log in, trading takes place through lnmarkets.com. Funding rate is every 8 hours.
Trades are denominated in USD, with the increments being $1 USD. When you trade, select the Quantity (USD) and Leverage (x) or Leverage (x) and Margin (sats), depending on the "Parameter" set. Currently a maximum of 2,000,000 sat margin is allowable per account. This includes open ("Running" in lnmarkets) and pending limit orders ("Open" in lnmarkets).
Opening a position:
You can add margin to trades. This will change your position liquidation price and withdraw from "Margin Available". Note: you cannot reduce margin on trades, only add.
Currently US based IP addresses are disallowed from using the lnmarkets.com platform.
An Options trading platform exists but as of Umbrel v0.4.17, options trading exists only on testnet. Testnet Options trading guide.
The lnmarkets' newsletter is high quality for anyone looking to get news and updates on all things lightning network.
could not log in with 192.168.x.x, shows a blank screen
- able to access lnmarkets app through umbrel.local and TOR
Error message: msg=JWT is expired. Cannot access account page.
- was still able to sign in on lnmarkets.com (browser remembered the login)
- restarting the Umbrel resolves the issue
- lightning network - instant withdrawals and deposits with potentially 0 fees and highly private
- reasonably low spread (difference between the lowest ask and highest bid prices), currently approximately $100 spread
- similar trading experience to traditional trading platforms
- requires channel management to deposit or withdraw funds
- centralized trading platform
- orderbook not currently present
ItchySats is an interesting project. ItchySats allows for non-custodial CFD trading without counterparty risk. The wallet you fund is a wallet you control (hot wallet). Each trade is locked into a 2-of-2 transaction. The price is based on a 3rd party oracle which looks at the price of Bitcoin from BitMEX. Currently each perpetual contract expires after 24 hours unless you log in to the platform before the 24 hour expiry. Trading occurs on-chain through Discreet Log Contracts (DLCs). This will incur transaction fees to open and close position. The funding rate is calculated on an hourly basis.
ItchySats appears to have great potential but it is in early stages and features are limited. Short positions were only recently allowed with the last update. As of Umbrel v0.4.17, limitations are only 2x leverage allowed, market orders only and the maker peer on the trades is the ItchySats team and the spread is large to limit their risk while developing. There are plans to continue to improve in the future. Their roadmap explains the project goals and a more detailed explanation of how the platform works.
Depositing to your wallet:
Opening a position:
Trades can only be denominated in 100 USD increments.
When closing the trade, the price will be the index price. This is different than most trading platforms. Typically, closing the position will use the next bid/ask price. So while the spread is currently high, it is only on one side of the trade.
Closing a trade:
- no counterparty risk
- huge potential
- simple to make trades
- limited trading platform currently
- large spread
- very different than typical platforms
- platform depends on technically complex concepts which may be difficult for some to fully comprehend
Information on Kollider will be added to this guide shortly.