Crypto derivatives
Crypto derivatives are the financial instruments in the crypto space. These derivatives allow traders to speculate on the price movements of cryptocurrencies without actually owning them. Derivatives can be traded on centralized or decentralized exchanges, and they include futures contracts, options, and swaps. For traders, it is very important to know details about derivatives. Most of the derivatives are available in both centralized and decentralized exchanges. Let’s talk about such a couple of derivatives.
Futures contracts are agreements to buy or sell a specific asset at a predetermined price on a specific date in the future. In the case of crypto futures, the asset being traded is usually a cryptocurrency. Futures contracts allow traders to speculate on the future price of a cryptocurrency, without actually owning it. Traders can make profits by buying low and selling high, or by short selling (betting that the price will go down).
Option actually gives the buyer the right, but not the obligation, to buy or sell an asset at a specific price within a specific time period. The asset being traded is a crypto-in-cryptocurrency option. Options can basically be used for speculation or hedging purposes. Traders can make profits by buying options when they expect the price to rise, or by selling options when they expect the price to remain stable.
Swaps are nothing but an agreement between two parties to exchange one crypto for another at a predetermined price and time. Swaps can be used for hedging purposes or to speculate on the price movements of cryptos. Swaps have the ability to manage risk or to make profits by exploiting price differences between different cryptos. Thus many big companies also use swaps to mitigate risk while converting currencies.
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VEIGO (Community Mod)
