Cryptocurrencies experienced a wild ride in 2020, even as economies around the world shut down due to the pandemic. With Bitcoin prices nearing as high as $45,000 and the introduction of several new cryptocurrencies and concepts like DeFi and NFTs, the rage about cryptocurrencies is nowhere near over. In fact, the market is exploding with the addition of several new unique and innovative products. Crypto derivatives are one such product that has been gaining traction for a while now.
For the uninitiated, crypto derivatives are financial products with an underlying asset as the basis for their value. The underlying asset here would typically be a cryptocurrency like Bitcoin. The most popular type of crypto derivatives includes crypto futures, crypto options, and perpetual contracts. Let’s take a closer look at them.
Crypto futures are a derivative instrument involving two parties agreeing to buy or sell an asset at a specified price on a specific date. An underlying, such as a digital token, is usually tracked by the agreement. In their simplest form, futures contracts are like a bet that allows traders to speculate on the price of an asset in the future. Participants can go long or short depending on whether they're betting on a price rise or expecting a price reduction. Traders that go long agree to buy the asset on a specific day, and short-sellers commit to selling the asset on the same date. When the contract's expiration date arrives, the parties settle, and the contract closes.
Let's take a look at an example. Assume we have a contract that says 1 BTC can be sold for $45,000 on August 31, 2021. Before the expiration date, the contract can be traded, allowing traders to purchase or sell based on their estimates of Bitcoin's future price. As a result, futures contracts might deviate significantly from an asset's spot trading price.
Currently, Bitcoin futures and USDT futures are the most popular type of futures.
Options contracts on a specified asset give you the right to buy or sell the asset at a specified price but not the obligation to do so. Options work similarly to other derivatives in that they allow traders to anticipate and profit from price movements. Traders who purchase options contracts are effectively betting on the price moving in a certain way. Call options and put options are the two forms of options contracts. In a call option, you expect the price to rise. On the other hand, a put option is one in which you expect the price to fall.
Just like with futures contracts, cryptocurrency traders can settle their options positions in cryptocurrencies. Crypto options are popular among traders because they provide a low-risk, low-cost alternative compared to futures or perpetual swaps.
In contrast to futures, perpetual contracts do not have an expiration date or a settlement date. Therefore, they can be kept or traded indefinitely. Lately, perpetual contracts have been gaining traction in the cryptocurrency world because they allow traders to retain leveraged positions without having to worry about them expiring. Due to perpetual funding rates, perpetual contracts trade close to the index price of the underlying asset, unlike futures.
USDT Futures for the win
Recently, C-Trade, the no.1 cryptocurrency derivatives exchange, launched four new USDT futures trading pairs - BTCUSDT, ETHUSDT, DOGEUSDT and XRPUSDT. USDT futures contracts are typically denominated and settled in USDT - a Stabelcoin pegged to the value of the US Dollar.
- Certainly, USDT futures are appearing to be the next big thing for decentralised exchanges for various reasons. USDT settlement provides traders with the ability to easily calculate their returns in fiat instead of Bitcoin. Therefore, they become more intuitive. For instance, if a trader earns 700 USDT as profit, they can very easily estimate that the profit will be around $700 because 1 USDT is pegged very closely with 1 USD.
- Furthermore, a universal settlement currency like the USDT offers greater flexibility by allowing customers to use the same settlement currency across several futures contracts (i.e., BTC, ETH, XRP, etc.). As a result, traders will no longer need to buy the underlying coins to fund futures contracts, nor will they have to pay exorbitant fees because trading with USDT requires no further conversion.
- Furthermore, even during instances of excessive volatility, USDT futures can help to mitigate the risk of big price fluctuations. As a result, traders do not have to worry about hedging their underlying collateral exposure.
Due to several advantages like these, several people are now choosing to trade with USDT futures, especially in times of uncertainty.
Join the crypto revolution with C-Trade
As a one-of-its-kind crypto derivatives exchange, C-Trade is truly breaking through barriers and establishing itself in the crypto space. With up to 150x leverage on all trading instruments, high-level security, instant withdrawals and much more, C-Trade is just the right platform for crypto derivatives traders. You can even get a $200 signing bonus when you sign-up.
C-Trade also has a new DeFi project coming up, known as FlurryFi. Despite the high levels of innovation happening in the DeFi space, user experience is something that has been largely overlooked, and FlurryFi aims to solve this issue by enhancing the usability of DeFi products. In an effort to make DeFi products more accessible, FlurryFi has launched rhoTokens, which are cross-chain stablecoins that automate the yield generation process for users.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. C-Trade, its affiliates, agents, directors, officers, or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same