The post Crypto derivatives: A tale of two trading options appeared on BitcoinEthereumNews.com.

Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial. Crypto can’t stay the same forever. However, the push to expand blockchain-based finance into new, useful, or wealth-driving territories has proven to be more difficult than expected. That said, crypto derivatives have gained traction as more experienced traders seek more sophisticated trade categories. Derivatives, of course, are a mainstay in traditional financial markets, so much so that they’re often part of compensation packages for employees joining burgeoning startups or already-public companies. But crypto derivatives don’t precisely mirror their fiat counterparts. Much like other facets of blockchain technology, “under-the-hood” tech and infrastructures mean that they don’t always function similarly to traditional market drivers. Yes, crypto derivatives like options create the opportunity to capitalize off the industry’s volatility and response to sociopolitical events, but traders effectively have two ways to go about it. Today, many crypto derivative platforms only offer options trading based on inverse contracts, which use cryptocurrencies like Bitcoin (BTC) as both the underlying asset and collateral. It essentially means that the contract’s value is inversely related to the price of the underlying assets. If BTC’s price goes up, the contract’s value drops, and vice versa. Under this model, both profits and losses are settled in the cryptocurrency itself—which exposes traders to both higher volatility and more complex pricing dynamics. This might be preferable to traders looking to speculate on the asset’s price volatility through direct exposure, especially during a bear market. Likewise, traders do stand to gain potentially higher yields by leveraging option price movements and positions in the underlying currency, especially in highly volatile markets. Inverse contracts also allow for more advanced hedging strategies since traders can hedge options and underlying assets in one fell…

---

Filed under: News - @ September 7, 2024 11:17 am