[Crypto derivatives 101] A beginner’s guide to trading in crypto future and options

Crypto derivatives are trading tools that let a cryptocurrency owner profit from the turbulence of the cryptocurrency market. A knowledgeable investor may earn on both sides of the market whenever he wants by trading in futures and options in crypto.

[Crypto derivatives 101] A beginner’s guide to trading in crypto future and options

Can you still make money if the value of your preferred cryptocurrency falls? If so, how can you benefit from a downward market trend?

The easy solution is Crypto Derivatives. Crypto derivatives are trading tools that let a cryptocurrency owner profit from the turbulence of the cryptocurrency market. A knowledgeable investor may earn on both sides of the market whenever he wants by trading in futures and options in crypto.

What is Derivative Trading?

In order to make more money than if they had purchased the underlying asset on the spot market, traders who engage in derivative trading make bets on the probable price movement of an asset by buying or selling derivative cryptocurrency contracts.

Derivative contracts on commodities, cryptocurrencies, currencies, stocks, and bonds are available to traders. Both the buyer and the seller bet on the asset's potential worth in the future, and a contract represents their commitment to these predictions.

What Are Crypto Derivatives?

1. Crypto Futures

A buyer and a seller have already agreed to exchange an asset in the future. This contract is a bet between the parties on the potential future value of a certain asset at a given point in the future. Although there are many different derivatives available in the crypto world, big game speculators like to employ this one since the data it provides is useful for predicting price alterations.

2. Crypto Options

Utilizing a future price goal and a predetermined price, traders are permitted to transact with certain cryptocurrencies when using crypto options. The way it varies from futures is by allowing the buyer to decide not to acquire similar assets in the future before the expiration date. Additionally, the buyer makes a promise to the seller by paying a premium. By the way they are settled, the quoted currencies, and the exercise type, crypto options can be categorised.

3. Perpetual Contracts

The cryptocurrency perpetual futures is popular among day traders. It is quite similar to futures, with the exception that a trader can hold perpetual futures eternally. It has no time limit. The only cost a trader incurs is the charge to maintain the contract. known as financing rate. Sellers pay funding rates in exchange for the right to hold positions for whatever long the trader deems necessary and with at least a minimal amount of margin in the account.

How to Trade Crypto Derivatives?

Not all cryptocurrency exchanges that allow spot trading also allow trading in derivatives. The first step in trading a Bitcoin derivative is to decide which cryptocurrency derivatives exchange you'll utilise. Trading costs and trading volume are two key factors that should influence your decisions. Following that, you must deposit your margin and begin trading. Depending on the exchange's rules, certain exchanges may demand KYC.

The Goal of Cryptocurrency Derivative Trading

A cryptocurrency derivative's ultimate objective is either hedging or speculating.

1. Hedging

To shield a cryptocurrency portfolio from market volatility, this stance has been adopted. Positions are opened in opposition to a spot position, meaning that changes in the value of the other position are used to balance gains or losses in one position.

To reduce losses and shield assets from sudden market movements, traders and owners of cryptoassets adopt these positions. Hedging is more advantageous than waiting for an asset's value to rise after a decline.

2. Speculation

Purchasing a token when you believe it to be oversold, hanging onto it until it rises in value, and then selling it after it has rebounded are the usual steps in cryptocurrency speculation. Just one issue. Not always. Cryptocurrencies won't increase. On occasion, everyone can see that the market is due for a slowdown or correction. A trader can speculate on both ends of the market with the use of derivatives. You can utilise some leverage to boost your profits if you think that a cryptocurrency asset is going higher. In a same vein, even if the market is down, you may still make money.

Pros of Derivative Trading

1. Market Performance

It is believed that derivatives increase the effectiveness of the financial markets. Derivative contracts can be used to imitate the distribution of assets. To prevent unfair advantage from arbitrage opportunities, all assets and underlying assets are balanced.

2. Controlling risks

Due to its volatility, the cryptocurrency market is well recognised for its infamy. Derivatives are therefore utilised to offset losses incurred by owning underlying assets in order to reduce risks brought on by such activities.

Cons of Derivative Trading

1. Dangerous

Due to the volatility of derivative contracts and the varying value of underlying assets, especially in leveraged contracts, losses can occasionally be suffered by both buyers and sellers.

2. Legislative Issues

Derivatives are prohibited in a number of nations throughout the world. Therefore, in order for a trader to engage in derivative trading, they must be inside the borders of a nation where derivatives are still allowed.

3. Extraordinary Features

Trading in futures and cryptocurrencies is mostly based on speculation. Due to its unpredictable nature, one bad assumption might result in significant losses.

4. Failure to Exercise Due Care

A background check for over-the-counter futures is virtually ever appropriate. Such transactions should not be trusted since they frequently do not follow established protocols.

Crypto Derivative Trading Limitations

1. Legislative Issues

Not everybody in the globe has authorised derivative cryptocurrency trading. Therefore, both parties must be located in an area where derivatives are legal in order for there to be effective derivative trading between two parties and no counterparty risk.

2. Over-the-counter derivatives lack due diligence

OTC futures are subject to counterparty risk. Tradesmen have no method to verify the relevant information or the legitimacy of the other party since such enterprises operate outside the bounds of compliance regulations.

3. Dangerous

Investors use derivatives as a kind of leverage, but they do so at the risk of losing assets upon liquidation. A trader who employs leverage incorrectly to short the market might suffer losses.


Rather of waiting for the next rise, you may earn some money by trading futures and options in crypto given the extended situation of the cryptocurrency market and the bears' apparent continued dominance of the market. While some of them, like options, could demand intricate techniques, others, like futures, only need a solid understanding of trading and a risk management strategy. You may now confidently respond to the inquiry, "What is a crypto derivative?" To get a sense of how it operates, we encourage you to play around with demo accounts.

Density is offering 10 USDT for first time traders upon completing their KYC and Bank verification. You can trade for free, don't miss out on this opportunity. Please do contact us on whatsapp +91 90350 92634 for any queries you have.

To learn more about the blockchain industry and how it is revolutionizing the world, check out Density Blogs