What is derivatives trading?

[askscn]

Derivatives trading is different from cryptocurrency trading. When trading a digital currency, we own it. For instance, when we buy Bitcoin, the currency we purchase goes straight into our digital wallets for us to store and manage.

Unlike Bitcoin or any other digital currencies currently on the market, investors cannot own a derivative; instead, they have to be bought in advance through futures contracts.

Investors can then choose to purchase futures contract (long position), believing that the prices of cryptocurrency will go up or buy a futures contract (short position) with the expectation that prices will go down.

Derivatives are used with financial instruments and assets such as gold, oil, commodities and recently cryptocurrency. Derivatives that are based on Bitcoin or Bitcoin Futures have been trading on the Chicago Mercantile Exchange Group’s (CME) electronic trading platform since 2017. It used to be available on CBOE but since there was no liquidity, it was pulled out of the market.

Meanwhile, some cryptocurrency exchanges such as Bitfinex also offered cryptocurrency derivatives for digital asset investors. Digital derivatives are not for those who use fiat currency.

Source: https://www.supercryptonews.com/bitcoin-futures-trading-market-make-profit-assets/

• This topic was modified 2 years, 4 months ago by askscn.

[Ben Jonas]

For trading purposes, derivatives are favoured over underlying assets because they provide more leverage, liquidity, and lower transaction costs than the spot market.

[Author]

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