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Derivative Trading Explained

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Cryptocurrencies like Bitcoin have become increasingly popular in recent years, and with good reason. However, one downside of cryptocurrencies is their volatility. This can make them difficult to use as a means of payment, as the value of a currency can fluctuate dramatically over just a few hours.

One way to mitigate this risk is to use derivatives. A derivative is a financial instrument whose value is based on an underlying asset, such as a stock or commodity. Derivatives have become popular in crypto, and there are crypto derivatives exchanges like Deribit and Redot that help users trade the derivatives market.

The Most Popular Types of Derivatives in Crypto

Futures

The most popular type of derivative is a futures contract, which is an agreement to buy or sell an asset at a set price at a future date. Futures contracts are typically used to hedge against price fluctuations in the underlying asset. 

Options

In the world of crypto, options are also becoming increasingly popular. As with stock options, crypto options give the holder the right to buy or sell an underlying asset at a set price on or before a specified date. This makes them an attractive option for traders looking to speculate on future price movements without incurring the full cost of purchasing the underlying asset.  


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Perpetual contracts

One popular derivative type is the perpetual contract. Perpetual contracts are similar to traditional futures contracts, but they do not have a set expiration date. This means that traders can hold them for as long as they like and choose to sell them at any time. Because of this flexibility, perpetual contracts are often used to hedge against price fluctuations or speculate on the market’s future direction.  

Swaps

Swaps are a type of derivative that can be used to trade crypto assets. A swap is a contract between two parties to exchange one asset for another. 

Derivative Trading Features

Auto Deleveraging (ADL)

ADL is a process whereby a cryptocurrency exchange automatically sells off a portion of a user’s position to cover losses incurred from price changes. This can be beneficial for users who cannot monitor their positions constantly, as it allows them to limit their losses.  

Stop Loss /Take Profit

As any crypto trader knows, Stop Loss and Take Profit are two important order types that can help to control risk and protect profits. Stop Loss orders are triggered when the price of an asset reaches a certain level. This can help to prevent further losses if the price continues to fall. Take Profit orders are triggered when the price of an asset reaches a certain level and can also help to lock in profits if the price starts to rise.  

Partial Close Order

A partial close order is an order to partially close a previously opened position. A partial close order is typically used when a trader wants to take profits on a portion of their position, but they believe the price will continue to move in their favor so they don’t want to close the entire position.  

Insurance Funds

A crypto insurance fund is a type of investment fund that provides protection for an exchange in the case of a mass liquidation. This can be helpful when drastic price swings create a liquidity crunch in an exchange. 

Where to Trade Crypto Derivatives in November-December 2022?

Binance

Binance is one of the world’s leading crypto derivative exchanges. It offers a wide range of derivative products to meet the needs of traders.  

 Bybit

 Overall, Bybit is one of the best crypto derivatives exchange options for those looking to trade crypto derivatives. The platform has a lot to offer regarding features and usability, and its low fees make it an attractive choice for budget-conscious traders. 

Redot

What is a crypto derivatives exchange list without mentioning Redot? Redot is a new cryptocurrency derivatives exchange that offers a unique suite of products and features. Among these is the ability to trade with leverage, which can be up to 100x on some cryptocurrency pairs. This high level of leverage means you can take a small amount of money and make a large profit – or loss. Redot also offers a variety of other features, including low fees, a user-friendly interface, and advanced trading tools.  

Deribit

Deribit has become one of the largest crypto derivatives exchange in the industry, with a daily trading volume of over $1 billion. The platform is known for its reliability, low fees, and advanced features. In addition, the exchange provides 24/7 customer support.  

Final Thoughts

Although crypto derivatives are still a relatively new phenomenon, there is already a great demand for them among experienced and first-time cryptocurrency traders alike. As the industry matures, we can expect to see even more innovative products being introduced.   



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The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur.


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