Exploring cryptocurrency Derivatives

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What are cryptocurrencies derivatives we might wonder, well it's quite different from owning and asset, we can own a cryptocurrencies asset and choose to stake that asset or use what we have to trade to get more so to speak but here in cryptocurrencies derivatives one can actually trade an instrument without really owning the underlying asset, it's just like ordinarily to trade bitcoin we need to have bitcoin so we can either but or sell it since we owned it but in derivatives we can actually trade bitcoin without actually owning even a fraction of it.

The value ofcourse of this instrument are still on the underlying asset being traded the only difference is that traders doesn't necessarily need to own this asset as features such as the futures and options have made this quite possible so invariably one can easily predict and speculate on a price projectory and partake in it without really owning such asset that's the beauty of cryptocurrencies derivatives and we have so many forms of this which I will carefully be breaking down.

A Breakdown Of Cryptocurrency Derivatives

We have the futures contract, this is one example of a derivative kind of trading were we trade an asset without owning the underlying asset. This is more like a type of derivatives trading that involves a binding agreement so to speak to purchase a cryptocurrencies asset or to sell at a certain time in the future and at a predetermined time its merely serves the purpose of hedging against the potential fluctuations commonly experienced in the market that's why this traders enter this agreement to either but or sell at a fixed time in the future.

We also have this one, which I mentioned before that's the option contracts much like the futures contract the only difference here is that in the option contracts the holder has the right to purchase this asset or sell at a predetermined time and price, yes they have the right but can choose not to exercise that right making it an option it's not mandatory, much not buying at a premium from sellers, this is also a good way to hedge against the volatile market and price movement.

We have the futures contract we also have the options contract and then we have the Perpetual swaps which has no expiration date, that's like an agreement to buy an asset at a future time and at a specific price and unlike the futures contract which has expiration date perpetual swaps has no expiration date and could opt to be in a positions as long as they desire.

We also have swaps as one of derivatives trading. In this process it simply involves exchanging any instrument at all amongst two persons. They can choose to either exchange cashflow or any asset at all in the financial market of their own choosing and this agreement depends on whatever this two parties decides is best for them and the reason for this is also associated with hedging and trying to manage the risk associated with interest rate.

Ofcourse it wouldn't really be complete unless I mention margin trading, when we talk or speak of margin trading what does it really entail. This is a situation where a trader wants to enter a position but do not have enough money to enter the position size of their choose, in this case the trader can choose to then borrow funds so to speak, for what purpose? That's to be able to open large position, positions that are way larger than even their balance and this is done for the purpose of increasing the potential profits they hope to get in such a trade at the same time it also amplifies the potential loss in an event the trade goes against them. So margin trading is another form of cryptocurrencies derivatives trading.

Conclusion

Ofcourse it's not a must that we partake in this form of trading, we can choose to partake in derivatives trading at our own will only after conducting a proper research I believe to be on the safe side, anything other than that it's completely unacceptable unless we want to expose ourselves to risks that are uncalled for. I mean we can truly profit much from derivatives trading only if we know what we are doing.