What are the prospects for derivatives in the crypto market?

Crypto derivatives.

The high volatility of crypto assets encourages traders to find and use various "tricks" to increase income and reduce risks. One such option is crypto derivatives. We tell you what it is, why they are necessary and how to earn money on them.

What are crypto derivatives?

Derivatives are one of the oldest forms of contracts that have recently also been used in the crypto world. Its essence lies in the fact that the parties to the agreement are endowed with rights and obligations discussed in advance. One of the most common forms (but not the only one) are futures.

What are derivatives necessary for?

The growing popularity of crypto derivatives in modern financial markets is due to the following reasons:

  1. The possibility of hedging risks and earning on the difference in prices. Profit from a derivative is able to smooth out losses, even if the value of the asset of interest does not move in the direction preferred by the investor, and also provides an opportunity to earn in a scenario that is favorable for the trader.
  2. Providing access to inaccessible markets or assets. For one reason or another, it may not be possible to deal with certain assets directly, but it is provided through the use of derivatives.
  3. Ability to determine the price of the underlying asset. The value of contracts can serve as a kind of reflection of the value of the price of goods.
  4. Increasing the efficiency of the market. It is expressed in establishing a balance between the value of the assets themselves and derivatives.

Derivatives in the cryptosphere: typology

There are hundreds of variations of contracts on the market, but they all come down to a few basic types:

  • Futures.

    Futures derivatives are widely used on exchanges. The essence of contracts is a pre-order at a predetermined price.

  • Forwards.

    These are contracts similar, in essence, to futures. Unlike the former, they are less standardized and are traded mainly on over-the-counter markets.

  • Options.

    Options - a type of contract that implies the right of the seller or buyer to buy and sell an asset at a certain price. Unlike previous varieties, participants can, but are not required to, enter into a negotiated transaction.

  • Swaps.

    Swaps are a more complex version of futures. This concept refers to agreements that allow its participants to exchange cash flows of different assets. They are concluded without the participation of exchanges, sometimes an investment banker can be involved as an intermediary.

  • CFD.

    CFD (contract for difference) is an agreement between two parties that provides for material compensation in the event of a change in the price of the asset in question, and it is received by the participant in the transaction for whom the price change did not occur in a favorable direction. That is, with an increase in the price of an asset, the seller pays the difference, with a decrease - the buyer.

Use of crypto derivatives

Having considered the typology of crypto derivatives, it is also important to pay attention to the principle of operation of these agreements.

Derivatives for bitcoin, as well as for other crypto assets, work on the principle of the possibility of obtaining speculative profit from them. For example, if a trader is sure that the price of an asset will increase, he can open a futures contract for a long position and buy an asset below the market value in the future, eventually earning on the price difference.

It is also worth mentioning that contracts are most often concluded between the buyer and the platform that supports the trading of crypto derivatives with fixing all the details of the transaction in the contract.

It is important to remember here that under the concept of “crypto derivatives” a whole group of financial instruments with its own characteristics is hidden, while united by a common principle that precedes the transaction itself by stipulating its conditions.

How to make money on derivatives?

The volatility of cryptocurrency assets provides traders with ample opportunities to earn on the difference in value, however, it is quite difficult to predict in which direction the price will change again. This makes any trading, including crypto derivatives, a high-risk activity.

Traders are given the opportunity to increase their income with the help of leverage. It is a kind of loan provided by the trading platform, which is proportional to the deposit made.

If we consider the above task step by step, the algorithm of actions will be as follows:

  • Search for a suitable exchange and registration.
  • Replenishment of the exchange account.
  • Conducting deep technical and fundamental analysis.
  • Contract expiration.

Advantages of cryptocurrency derivatives and their disadvantages

Like any financial instrument, derivatives have both pros and cons. Among the first are:

  • Earning opportunity.
  • Variety of assets.
  • The possibility of earning income when the price changes in any direction.
  • The ability to earn income from cryptocurrencies without actually owning them.
  • The provision of leverage, which can be simultaneously attributed to both advantages and disadvantages: it helps to earn in a favorable scenario and leads to a loss in an unfavorable one.

Among the disadvantages it is possible to note:

    Market volatility, mentioned earlier. Along with the opportunity to earn, there is always the opportunity to lose.
  • Difficulty for beginners. And mistakes in this area can cost a lot in final terms.
  • Lack of clear regulation or ambiguous attitude of states to the cryptosphere.


In general, it can be mentioned that the emergence of derivative assets in the crypto market has increased trading opportunities, which contributes to the manifestation of greater interest in the sphere of digital assets. In turn, the constant interest in the field gives reason to talk about the prospects of both new tools and the sphere itself.



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