What do you know about cryptocurrency derivatives
Cryptocurrency derivatives are financial instruments that gain their value from the price of digital currency, such as Bitcoin. They allow traders to speculate on the possible price movements of cryptocurrencies, without actually taking the underlying asset. In this article, we will divide what you need to know about cryptocurrency derivatives.
What is a derivative of cryptocurrency?
The cryptocurrency derivative is the agreement between the two -parties based on the performance of the digital currency. For example, the call option is a type of derivative in which the holder is entitled, but not obliged to purchase security at a certain price before a fixed date.
Types of Cryptocurrency derivatives
There are several types of derivatives available for cryptocurrency trading:
1
Options : As mentioned above, options give the buyer the right to buy or sell security at the end of or before the price at the end of the term.
2
Future Agreements : Future Agreements are similar to options, but have a shelf life and are settled in cash or physical assets rather than securities.
3
Interaction : The interaction is due to the exchange of one financial instrument against another, often with a fixed interest rate or currency conversion. In the context of cryptocurrencies, the swap can be used to ensure risk limitation against price fluctuations.
- Aggregate Agreements (CCD) : CCD is similar to future contracts, but in addition to the underlying security requires collateral (eg assets).
Why use cryptocurrency derivatives?
Cryptocurrency derivatives offer several benefits to traders:
1
Risk Restriction : Derivatives can be used to ensure risk limitation against price volatility, allowing traders to manage their own exposure to market risks.
- Speculation
: Derivatives provide opportunities for speculative trade, as prices are not fixed and can be affected by a number of factors such as news, mood and market conditions.
3
Liquidity
: Cryptocurrency derivatives can offer high liquidity, which is essential for large -scale trade.
Risks associated with cryptocurrency derivatives
While cryptocurrency derivatives can provide an attractive type of cryptocurrency trading, there are several risks to consider:
- Market Visitant : Cryptocurrencies are known by its own volatility, and derivatives can enhance price movements.
- Liquidity Risks : Lack of liquidity in some markets can cause significant losses if you cannot sell your position or at a favorable price.
3
A counterparty risk : Trading of derivatives involves the risk of a counterparty where one side (buyer) can associate with their obligations.
- Regulatory Risks : The rules can change rapidly, and trade in cryptocurrencies is often based on a lack of clear guidelines.
Protecting the use of cryptocurrency derivatives
To reduce risks by using cryptocurrency derivatives:
- Diversify your portfolio : Spread investment in various assets to reduce risk.
- Educate yourself : Understand the derivative mechanics and how they work before trade.
3
Use a reserve or tie : Consider using the reserve or attractors to enhance the potential benefit, but note that it can also increase your loss.
- Markets Market Conditions : Keep up with market trends and news to make conscious trade decisions.
Conclusion
Cryptocurrency derivatives offer traders a unique opportunity to speculate on the price of cryptocurrencies without taking the underlying asset. While these tools have risks, understanding their mechanics and best practices can help orient the market effectively.