What is a Derivative?
A derivative is a financial contract with a value that is derived from an underlying asset. Derivatives have no direct value in and of themselves – their value is based on the expected price movements of their underlying asset. When the underlying asset is a cryptocurrency like Bitcoin, they are termed as Cryptocurrency Derivatives. Trading Crypto derivatives doesn’t actually involve buying or selling cryptocurrencies. Instead, this approach provides an alternative path for investors to get exposure to the underlying cryptocurrency.
Derivatives are often used as an instrument to manage financial risk at the expense of high returns for the other party. There are 4 main types of Derivatives:
What are futures?
Futures are contracts that facilitate the buying or selling of an underlying asset at a predetermined price at a future point in time. Here, counterparties are obligated to fulfil the terms of the contract, either buying or selling the asset at the decided price on the date of expiry. There are special types of futures which come with no expiration date.
What are Cryptocurrency Futures?
Contracts here are still settled at the predetermined price.
Crypto futures allow you to speculatively trade on the future prices of cryptocurrencies without owning the cryptocurrencies themselves. When two parties enter a crypto futures contract, they agree to buy/sell an asset or security at a predetermined price on a selected date in the future. The price of Cryptocurrency futures is directly proportional to the prices of the underlying cryptocurrencies. EasyCoins users can trade both Bitcoin and Altcoin futures on the platform.
- Hedging and better risk management
- Low Transaction costs
- Exposure: Traders can bet against an asset’s performance without owning it directly
- Leverage: Traders can enter positions that are larger than their account balance
Futures vs Margin Trading:
Cryptocurrency Futures are always superior to margin trading because futures provided;
Future contracts allow much higher leverage than the maximum leverage allowed in Margin trading. On EasyCoins, Cryptocurrency futures can be leveraged to as high as 15x, whereas margin trading is capped at 5x.
The margin trading market is a borrowing market, which are difficult to build. As a result, these markets overall have lower liquidity. Future markets are more liquid than spot markets since they are free of this limitation and are easy to develop.
No Cost of Interest:
A futures contract will either trade at a premium or discount. There are no costs of interest involved in holding the futures. In the case of margin trading, EasyCoins offers interest-free margin trading for the first 1 hour, with a charge of 0.05% per day thereafter.
EasyCoins - India’s first Cryptocurrency derivative exchange
EasyCoins is India’s first cryptocurrency derivative exchange that offers immense liquidity on its Bitcoin and Altcoin future products. EasyCoins allows users to trade cryptocurrency futures with up to 20x leverage. The maximum leverage limit for every futures contract can be found under the contract details section in the trading terminal.