the best platforms to trade them.
cryptocurrency derivatives and where best to trade them.
Derivatives are capital-efficient trading instruments that obtain their values from other assets. In the case of cryptocurrencies, that asset is usually Bitcoin, although, as well as Bitcoin derivatives, there are also derivatives markets for alternative cryptos such as Ethereum, EOS and others. Derivatives offer traders the opportunity to gain an edge in managing risk while amplifying their profits. The crypto derivatives market has grown substantially during the course of the last few years and there are several reasons why this has come about.
Cryptocurrency derivatives were originally developed as a way of mitigating the risk associated with the volatility of cryptocurrencies. Hence, they served the purpose of reducing the risk exposure of investors. Moreover, they sought to help investors protect their asset portfolio from losses. In parallel with this, they have now also become a useful tool for cryptocurrency enthusiasts to speculate on the price of digital currency.
The process for trading a derivative works whereby a trade is placed which can be long or short depending on where the price of the specific crypto is anticipated to go next. If the trader calls it correctly, he will make a profit. If he gets it wrong, he will make a loss.
The stakes can be increased considerably when traders use leverage on their positions, known as margin trading, which has the multiplier effect. Hence, traders can place an order size several times larger than the amount of funds they have in their account. Some of the main exchanges offer up to 100x leverage, which effectively means with $1,000 of funds, you are able to place a trade to a maximum value of $100,000.
As we have noted, the market for crypto derivatives has exploded in recent years with trading volume now as much as 10-20 times greater compared with the spot market. As a result, more trading platforms are emerging to cater for this increased demand.
Choosing the right derivatives exchange depends on what precisely a trader needs from the market and as each individual cryptocurrency derivative exchange has its own products, it is important to understand the features of different exchanges before making a choice.
There are a large number of derivatives platforms from which to choose, with the likes of BitMEX and Bybit considered to be established players. BitMEX is the market leader by volume, but is not considered by some as having the most user-friendly of environments. Others like Bybit can provide a more solid grounding in crypto derivatives, with various tutorials, including mobile app and helpful customer support, as well as a user-friendly interface. Margin products are also now available on Binance and a few other emerging exchanges such as B2BX and CoinFlex.
Venturing into the field of crypto derivatives can seem daunting as there are a lot of technical terms to learn, technical analysis to master, and order book features as well as other settings that you may have never encountered. Choosing an exchange like B2BX that will support your learning, help you boost your knowledge - as well as your potential profits - will help you master crypto derivatives and fully utilise them to your financial benefit.