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Established in 2014.
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Cryptocurrency Derivatives Trading

Discover why cryptocurrency derivatives are growing in popularity and how they can help traders manage their risk. Equip yourself with everything you need to know about this interesting new trading instrument.
Author: Rosemary Barnes
Time to reading: 5 minutes

Using Crypto Derivatives

Derivatives continue to grow in popularity and are an effective tool to help traders manage their risk. From the offset, it is important to be clear about what derivatives are and how derivatives trading systems work. Essentially, derivatives are capital-efficient trading instruments that get their value from other assets, in the case of cryptos - Bitcoin, or other leading cryptocurrencies such as Ethereum. With derivatives, traders have the chance to obtain the edge in terms of risk management, at the same time as boosting their revenues. There has been a lot of interest in crypto derivatives in recent years for a number of reasons.

Crypto derivatives came about as a means of alleviating the risk element of cryptocurrencies in terms of their volatility. They seek to reduce an investor’s risk exposure, while at the same time helping them to protect their asset portfolios against losses. Today, they are one of the most useful tools for crypto traders for speculating on the price of Bitcoin and other cryptocurrencies.

How Do Derivatives Work?

Trading a derivative is quite straightforward and works by placing a long or short trade according to where the trader thinks the price of the crypto in question will go next. If the trader makes the right decision, he stands to make a profit, but a wrong decision will result in losses.

Leverage can also be used by traders to increase their potential profits (or losses) on the positions they take. This is known as margin trading and allows traders to place a bigger order size than the funds they actually have available for trading. Hence, if an exchange offers 100x leverage, this means that with $2,000 funds, a trader can trade up to a value of $200,000.

It is clear to see why the crypto derivatives market has really taken off in the last few years. Trading volumes are estimated at between 10 - 20 times more than the market for spot trading, so we are seeing more and more trading platforms spring up to fulfill the demand.

Where Can You Trade Crypto Derivatives?

As with the trading of any asset, you should find a good cryptocurrency exchange that matches your requirements. Selecting an exchange for derivatives can be done in accordance with your needs since each cryptocurrency derivative exchange has different offerings. For this reason, it is also important to check out various exchanges to see what is on offer before deciding to proceed.

Thanks to the popularity of crypto derivatives trading, a large number of platforms have emerged, such as BitMex, one of the most well-known players. Each platform comes with its own pluses and minuses, with some, for example, being regarded as not so user-friendly as others. Others are known to offer more on the educational side of things by offering tutorials, good customer support and a friendlier user-interface. With regards to margin trading which was mentioned earlier, both Binance and B2BX, part of B2Broker, a leading trading system vendor, now offer this service in response to increased demand.

While crypto derivatives may seem quite daunting to some traders due to the fact that there is much to learn in way of technical terms and technical analysis, order book features and a whole range of other new settings to adapt to, as long as you get clued up and practiced, you will soon begin to grasp the techniques. Some of the best exchanges incorporating derivatives trading software like B2BX focus on supporting your learning and building your knowledge in order to help you master crypto derivatives and make the most of them for your financial gain.

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