If you’re an experienced crypto trader, chances are you’ve explored the world of crypto derivatives. However, for many new and inexperienced traders, crypto derivatives are the next level of crypto trading that requires strong crypto knowledge and strategic trading. While traditional trading on crypto spot markets requires investors to hold their coins until the market increases and they can sell high, crypto derivative trading allows users to earn money even when the price of the asset drops and without having to actually buy into that particular cryptocurrency. Here’s a look at crypto derivatives and the different types of advanced crypto trading available to you.
Crypto derivatives are contracts that derive their value from an underlying asset, typically a cryptocurrency. Crypto futures and crypto options are the most popular forms of crypto derivatives available today. Any advanced trader can begin trading crypto derivates through compatible platforms such as the FTX platform. All crypto derivatives come with their own risks, just like any other form of investment or contract deal. Here is a quick look at crypto futures and crypto options and how each derivative is unique.
Crypto futures are a widely popular form of derivative trading that involves two parties essentially betting on whether or not the price of a particular cryptocurrency will increase or decrease over a set period. If you believe the cost of the coin will improve, you will go ‘long,’ and if you think it will decrease, you go ‘short.’ Whichever option you select, the algorithm will pair you with another trader who went the opposite way. You both agree on a specific date and time to settle the contract, and at that time, if the price of the asset has decreased or increased, the incorrect trader must pay the other the price difference. However, the payout at the end of the contract can be done in any agreed-upon currency. This means that neither trader must ever actually own any cryptocurrency they are betting on, andtraders can earn money even when the asset price decreases.
Crypto options trading is a bit more flexible than futures trading because users do not have to resolve the contract at the specified settlement date. Instead, traders enter into an agreement where they have the option to buy or sell at a set price at a specific future date. Once this date is reached, traders can either ‘call’ or ‘put’ their investments. If they choose to call, that means they are choosing to buy that crypto at the pre-agreed upon price. Calling is best when the cost of the cryptocurrency has increased by the time the contract ends. You can also choose to put, which means you are opting to sell your crypto at that time at the agreed-upon price. It’s best to put when the price has increased. Traders also have the option to make no decision and allow the contract to expire without buying or selling any crypto. Though crypto options trading offers flexibility and control for investors, there is a premium that must be paid to enter into a crypto options derivative, so letting the contract expire will still come with costs.
These are the basics of crypto futures and crypto options. There are more crypto derivatives out there for advanced traders to explore. If you’re interested in learning more about advanced trading and getting started in the exchange, you can join the FTX online community for more information and access to the exchange.