Let’s talk about the essence of this financial instrument. While spot trading implies that you buy and sell cryptocurrency here and now, receiving coins in your wallet, derivatives mean trading cryptos without the necessity to buy cryptos and own them.
Crypto trading refers to buying and selling cryptocurrencies to make a profit from the difference in their rates. This process is similar to traditional trading in stocks and commodities, but with higher risks due to increased market volatility and the relative youth of the crypto market.
What are derivatives?
Crypto platforms offer various tools to generate income, including spot trading and advanced instruments such as crypto derivatives. Derivatives allow traders to speculate on digital asset prices without the necessity to buy cryptos and own them. Instead, traders predict crypto rates and place bets on them. Derivatives work in both increasing and declining markets, with investors hedging risks using derivatives in bearish markets and speculating and earning on price growth in bullish markets. The three main types of crypto derivatives are futures, options, and perpetual futures.
Futures involve users forecasting a digital coin’s value and entering into an agreement with another user. This agreement sets a preset price that the coin will reach at a later time, along with the day on which both participants must fulfill their agreements. There may be short and long types of positions, with the long position anticipating an increase in the asset’s rate, while the short position involves purchasing coins at a lower value later on.
Traders can use margin to create better long and short positions by borrowing money from a crypto exchange where they enter into an agreement. However, users must be attentive to margin calls and aware that their positions may be liquidated if the coin’s price goes beyond or below the agreement’s indicated value.
Looking to trade crypto futures?
Two popular and reputable platforms are WhiteBIT and Binance Futures. For beginners, WhiteBIT may be a better choice as it offers a user-friendly interface and necessary tools for futures trading. Leverage is also available, allowing you to multiply your investments by borrowing funds from the exchange reserves fund. However, it’s important to choose the smallest leverage size for your first attempt and be cautious because the more you borrow, the more you could potentially lose if your price forecast is incorrect.
The WhiteBIT exchange allows users to try this financial instrument using demo tokens to practice and experiment with leverage ratios for better results when working with real assets. The WhiteBIT blog is a helpful resource that provides manuals on crypto trading and overviews of coins to help traders understand which crypto to buy and which assets are best for derivative contracts.
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