One of the benefits of trading crypto futures is that you can still profit from both bears and bulls market. It is the strategies that you can use to facilitate your hedging. New crypto future traders, you should read on and see how does it work, and how you can get in.
Reuter's recent report shows that the total traded volume of crypto derivatives shot up to $3.10 Trillion in July 2022. This is almost thrice the volume of spot trades which stands at $1.40 Trillion—derivatives in crypto account for nearly 69% of the total traded volume of centralized exchanges. To better understand crypto derivatives, let’s start with understanding what they are and how they are different.
What are crypto derivatives? How are they different?
A derivative is a contract signed between the seller and buyer in trade of an underlying asset at a specific price in the market. The underlying asset can be a commodity, an index, or any type of asset where its prices have a variation dependence on the market activities.
What makes a general derivative trade different from a spot trade is its nature of execution. It will settle the delivery of its underlying assets and futures contracts at a date in the future that has already been determined. On the other hand, spot trading involves the immediate delivery of the traded asset.
Before getting into how to trade in derivatives, let’s start by understanding the different types of crypto derivatives.
Different types of Crypto derivatives.
Although multiple types of crypto derivatives are available in the market, the most popular ones are futures, options, and forward contracts.
Futures contracts are one the most popular derivative products. It allows users to buy and sell at a fixed price on a future date based on their prediction. Future contracts come with a settlement date, so the trader will have to decide the duration of the contract, which can be weekly, bi-weekly, monthly, and so on.
Traders make or lose money depending on the crypto’s price movement during this tenure. Using this, traders can either long or short their positions. Where, Long means the price will go up, and Short means the price will go down.
For example, if Sam wants to buy a bi-weekly BTC contract worth $1 of BTC and the price is $20000, he will purchase 20000 contracts. Now, he can either go Long (bets the price will go up) or Short (bets the price will go down). After Sam called for his strategy, the exchange will automatically match Sam’s position with someone who bets the opposite, and the winner takes the profit. If Sam chose to go Long, and the price moved to $25000 before settlement, he would make a rough profit of $5,000.
For example, if a buyer buys a futures contract for one Ethereum at $3,000 and rises to $5,000 by contract closing, it will make a $2,000 profit. Similarly, If the price drops to $2000 by contract closing, the buyer loses $1000.
On the other hand, options are a type of derivative that gives a person the right to buy or sell an underlying asset at a specified price regardless of its expiry date, just at the cost of a premium. This means you don’t have to purchase the full asset but buy an option to execute this trade as per your will. As the name suggests, the trader has an option to either buy or sell at the time of expiry at the predetermined price.
Taking the previous example into account, let’s change crypto futures to crypto options. Here we have Call and Put options equivalent to long and short. If Sam opened a put option for BTC (at $20000) and the price moved to $25000, if he completes the trade, he will have to bear a loss of $5000. Whereas, through options, he has the right to forfeit the trade and the only loss he will incur is the premium paid.
A perpetual contract is primarily similar to all the previous derivatives, but the only difference is that it never expires. If you buy a BTC perpetual contract at any given price, you can hold it forever unless it meets certain conditions, like the margin limit, funding rate, etc.
There are other types of derivative products which are not preferred for beginners, like: forwards, swaps, etc.
How to trade crypto derivatives?
You can distinguish between different types of derivatives with the explanation given above. Now, let’s understand how you can trade these crypto derivatives through the guide given below:
- Step 1: First, you must compare the exchange margin, settlement period, maker/taker fees, and withdrawal limits. After that, choose a crypto exchange with the best fee value, like C-Trade, which supports trading in crypto derivatives.
- Step 2: Register an account on C-Trade, complete KYC and fund your crypto exchange account.
- Step 3: Focus on the crypto derivatives you want to trade. Learn how the margin system works, then decide on a margin rate. You should keep initial margin requirements for new investors to a bare minimum.
- Step 4: Buy futures contracts by making a small deposit and using the margin. Keep the futures contracts on hold until the date that they are due. Close the position before maturity and book profits or losses.
What are the top crypto derivatives you should trade?
Here are some of the top crypto derivatives that you should trade.
- Bitcoin: BTC is the most traded crypto asset in the perpetual market and accounts for more than half of crypto’s total traded volume. It is the perfect option for a beginner to try crypto derivative trading.
- Ethereum: Like spot trading, ETH is the second most preferred cryptocurrency of derivative traders. It offers them good price movements and attractive leverage. If you are new but also want more volatility, ETH is the perfect option for you after BTC.
- Dogecoin: The meme coin is still one of Elon Musk's favourite. One tweet from him will wiggle its price. It's might not be the best long term investment, but a day trading strategy on the $DOGE derivative could be profitable.
Advantages of trading with C-trade
C-Trade is among the top exchanges that deal in cryptocurrency derivatives and perpetual contracts in the most common cryptocurrencies.
It offers a high level of security, low fees, and easy access to liquidity. Best of all, C-trade give the best leverage tool in the market - up to 150 times leverage available.
This above content is not financial advice, please do your own research before investing. There are risks that pose in all sorts of investment since there’s no guarantee in any derivative products whether it is in crypto or in the financial market. However the higher the risks that poses, the bigger the reward that there is. Please access your own financial profile before investing in any derivatives futures contracts.
Crypto exchanges like C-trade serves as a medium, providing a platform possible for users to enter and trade in the crypto market with a manner that is both efficient and quick by utilising crypto derivatives. All trades are booked on the blockchain where C-trade will not be hold accountable as the platform service provider for any losses lead by users misuse of trading strategies or investment decisions.
C-Trade is a next-generation cryptocurrency derivatives trading platform established in 2019 and registered in the British Virgin Islands. At C-Trade, we have invented, and keep inventing, top-notch approaches for the best trading experience.