Derivative Trading for Cryptocurrency

January 6, 2022


Undoubtedly, the traditional derivative market has always been a point of attraction for investors for several decades. But the widespread adoption of cryptocurrency as an investment alternative has given rise to one of the significant questions – “Are there derivatives in the crypto ecosystem too?” The answer is, indeed yes, the existence of a Crypto Derivative Market is a reality that is contributing immensely to the overall crypto economy. So, isn’t it the time to know “Crypto Derivatives” better and make the best out of them?

Derivative Trading in Crypto

Basically, a derivative refers to the contract whose value is determined based on the specific underlying asset. Here, the parties in the contract wager on the future value of underlying assets. Currencies, commodities, stocks, and exchange rates are some examples of traditional derivative assets.

Similarly, in the crypto ecosystem, any cryptocurrency token can be the underlying asset for the derivatives. During the initial or first phase of the contract, the associated parties agree on the common selling or buying price of the cryptocurrency. Thus, the changes in the value of underlying assets are what defines the value of crypto derivatives /products too based on which profit margins are determined.

Crypto Derivative Market

The fast-growing crypto derivative market has attracted a huge volume of investors and enthusiasts in recent times and the trend seems to go a long way. The study of Token insight’s cryptocurrency Derivatives Exchange suggests that in Q3 2020, the trading volume of derivatives was recorded as $2.7 trillion. This indicates a 159.4% increase with respect to the year Q3 2019. Isn’t that an enormous growth leap in the crypto derivatives market?

Popular Derivatives in Crypto

Depending on the conditions of a contract, derivatives in the Crypto environment can be of the following types.
● Options: A trader gets the right to choose but not the duty to buy or sell any underlying asset at some definite future date and price.
● Futures: It is a legal agreement where two parties are authorized to buy or sell an underlying asset at some specific period and are executed through the exchange.
● Perpetual Contracts: These forms of derivatives do not hold any expiration or settlement date but traders can keep their position open and hold the desired amount of crypto.
● Swaps: Here, the parties agree to exchange cash flows on the pre-determined future date. These are usually OTC (Over-the-counter) contracts and are quite similar to forwards. To be noted these are not traded on exchanges.

Where to trade crypto derivatives?

There are several crypto exchanges providing room for derivative trading too. Such crypto derivative trading platforms are more flexible in nature than spot margin trading. Some of the known names for trading crypto derivatives are – Binance, Huobi, FTX, Bybit, OKEx, CoinFLEX, KuCoin, Deribit, Bitmex, Bitfinex,, etc. The list is way longer and continues to become more extended with the growing culture of cryptocurrency and its derivatives.

Importance of Derivative in the Crypto Economy


In a short period, crypto derivatives have become a pivotal component of the economy owing to their advantageous nature. The first and foremost reason why crypto derivatives have created a special place in the crypto ecosystem is because of their ability to allow portfolio diversification. With the right derivative, investors and traders can create sophisticated strategies like arbitrage trading or pairing.

Additionally, crypto derivatives safeguard portfolios from unexpected risk and price volatility. The absence of derivatives in the portfolio makes it quite difficult for long–term investors to stay less affected in the bear markets. Alongside, the crypto derivative promotes price discovery and helps to determine the value of the asset using various variables, market liquidity, and other such information.

Final Words

The crypto–derivatives have certainly onset on the mission to be the cherry on the cake with the immense support from Derivative Exchanges. The explosion of cryptocurrency in the world economy being backed by Derivatives is not surprising but the world still needs to command the sincere regulation for continuing the crypto booming culture.

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