Crypto derivatives are a firangi concept.
But it’s getting desi-fied REAL quick.
And we’re here to bring you all the alpha, beta, and gamma of the crypto derivatives space.
And help ya get onboarded if you’re from India.
Let’s get into it.
Obvi: What are the types of derivatives?
Derivatives are like jaadu. No, not like the Jaadu from Koi... Mil Gaya, but like financial jaadu.
In simple words:
Derivatives are contracts that track the price of an underlying asset. These assets can be bonds, stocks, commodities, interest rates, or even cryptocurrencies, etc.
But like crypto derivatives and trad derivatives aren’t 2much different.
Here are some similarities:
- they both have expiration dates
- they both have expiration prices
- they both track and underlying assets
- they both are used to trade on volatility
There’s just one catch: Crypto derivatives have this v v cool thing called perpetuals.
These are currently only in the cryptocurrency market, making your banker friends v v jealous.
Let’s see what perpetuals are and how they differ from the rest.
Yeh perps kya hai bhai?
Perpetuals are like the Amitabh Bachan of crypto derivatives.
They’ve been around from the start. They’re always reliable. And they’re the don of the crypto markets.
But like, what tf is a perpetual?
Here it is in simple words:
Perpetuals or perps are derivative contracts that track the price of an underlying cryptocurrency and do not expire. Traders can hold their position for a specific fee and bet in favour of or against the price of a cryptocurrency using perpetuals.
Perpetuals track an asset by making sure the price of the derivative contracts roughly tracks the index price. Just like you track your ex using Instagram 🙃
This = is called the funding rate.
If the funding rate is ➕ then the derivatives contract’s price > index price
If the funding rate is ➖ then the derivatives contract’s price < index price
Based on this rate (and a bunch of other things like if your girl dumped ya) the market goes long or short on a cryptocurrency.
Go long → Expect the price to go up
Go short → Expect the price to go down
Yeh perps kyun trade karna hai bhai?
See, perps are pretty cool because you get the exposure of spot with the liquidity of derviatives.
What tf does this mean?
→ exposure of spot: Traders don’t need to own the asset. They can simply trade the contract, and go in either price direction — long or short.
→ liquidity of derivatives: Derivatives are MAD liquid, they can be bought and sold in minutes without any slippage or downtime.
The BIGGEST benefit?
Leverage. Leverage allows traders to increase their exposure with the same capital by taking on more risk.
Like that garam doodh ki tapeli be very careful with leverage.
With exposure + liquidity + leverage traders can take advantage of volatility and even hedge the risk in their sport portfolio.
Venturing into the field of crypto derivatives is a good choice for both beginners and experienced traders.
A trader can go with various options but choosing derivatives should be entirely on risk tolerance.
So be cautious frens.
Where to trade crypto derivatives?
Crypto Derivatives can be traded on centralized and decentralized exchanges.
But centralized exchanges have far less slippage, downtime, and efficiency.
Crypto derivatives are v v cool tools for traders willing to play the volatile crypto trading game.
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.
You can learn more about the blockchain industry at our Density Blogs.