An Introduction to Crypto Derivatives: Types and Features | by LBank Exchange | Feb, 2023

From the LBank blog.

An Introduction to Crypto Derivatives: Types and Features

Crypto derivatives are financial instruments whose value is derived from an underlying asset, in this case, cryptocurrencies. They provide an opportunity for traders and investors to bet on the price movements of cryptocurrencies without actually owning the underlying assets.

Think of it as betting on the outcome of a sports game. Just as you might bet on a team to win, you can bet on the price of a cryptocurrency to go up or down. Instead of physically owning the cryptocurrency, you are holding a contract that gives you the right, but not the obligation, to buy or sell the cryptocurrency at a predetermined price.

In simple terms, crypto derivatives are a way to bet on the future price of cryptocurrencies and potentially make a profit without actually owning the underlying assets.

What are the most common types of derivatives in crypto?

The most common types of crypto derivatives are:

What are the major features of derivative trading?

The key features of derivative trading are:

What are the purposes of crypto derivative trading?

Derivatives trading in crypto are used for the following:

What are the key differences between the spot market and derivatives market?

Here’s a table summarising the key differences between the spot market and derivatives market:

Conclusion

Crypto derivatives come in various forms and offer traders the ability to speculate on price movements, hedge against price fluctuations, increase leverage, diversify their portfolios, and determine the fair market value of an underlying asset. However, it’s crucial to understand the underlying mechanisms and risks involved in derivative trading, as well as to trade within one’s risk tolerance. By carefully considering the features and benefits of derivative trading, crypto traders can make informed decisions and potentially maximise their returns while minimising their risks.

Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.

This article came directly from the LBank blog, found on https://lbank-exchange.medium.com/an-introduction-to-crypto-derivatives-types-and-features-8bf750fb95b8?source=rss-87c24ae35186——2

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