Understanding the Types of Crypto derivatives

If the term ‘crypto derivatives’ has been making you curious, take a breath, for these are strikingly similar to the stock market derivatives. Of course, the link with the digital currencies makes them unique, yet the resemblance is obvious in the procedures of trading and making profits.

The conventional definition refers to derivatives as financial products whose value is hinged to another asset. Crypto derivatives draw their value from the underlying cryptocurrencies.

To make profits in crypto derivatives, traders wager upon the value of an underlying asset. If you have a knack in speculation and skills to harness leverage effectively, the probability of your minting money is high.

If you are planning for derivatives exchange development, the following are the types of derivatives that you can integrate into your exchange platform.

Futures

The most popular derivative, it has two parties obliged to buy or sell an asset at a price previously agreed upon on a specified date. Dealing in futures also offers an opportunity for valuable hedging. Traders holding an existing spot position in a crypto asset may take an opposing position in a futures contract to slash down price vicissitudes.

Dealing in crypto derivates also allows traders to use the leverage that cannot be used in spot trading. Leverage is a mechanism that allows traders to borrow funds to invest in a contract. Without doling out their own capital, they can hold a greater position.

Perpetual contracts

These contracts are a clone of crypto futures contracts. The only difference is — they don’t expire. Traders can hold a position as long as they have enough funds. This suits them more than futures trading, which requires them to invest after every few hours to keep the position. Perpetual contracts combine the intuitiveness of spot trading with the risk hedging of the futures market.

Options

By integrating Options into your derivatives trading exchange, you enable your users to buy or sell an underlying asset at the pre-determined price within the specified timeline. They may take a call or a put option. Unlike the usual futures contracts that require the parties to buy/sell at expiry, traders are under no obligation to do as such in case of Options. They simply have an option at hand.

If you are finding it hard to comprehend, here is an example to drive the point.

Suppose a trader wants to buy 10 ETH at $200 per ETH, but apprehensive of wild ups and downs in the cryptocurrencies market, they decide to have a call option. It will allow them to purchase 10 ETH at the given price for a specified period, regardless of the slump or rise.

Now, let us assume that when the expiry period arrived, the price of ETH had increased to $250. The trader has the option to buy ETH at the prefixed rate and sell it off for the market price, taking home a net profit of $500.

Swaps

Traders use swaps to exchange one type of crypto derivate with another and earn profit at a fixed time later.

Forwards

Forwards resemble futures, with a difference. Forwards can be customized, unlike futures. However, what they need to remember is forwards are generally traded through OTC (over the counter), so they need to take the associated risks into account.

Summing Up

Crypto derivates are a potent tool for traders to earn money. Collaborate with a dependable company for derivate exchange development and provide your customers will all the trading tools they may be wanting on your exchange.

Antier Solutions is one of the few companies that you can trust to set up a derivates trading exchange for you. We have earned a name as a one-stop solution for all needs related to crypto and blockchain development.

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