The birth of Blockchain-based Crypto trading and DeFi has refurbished the cryptocurrency market in the last couple of years. DeFi Exchange platforms have introduced diverse developments & cutting-edge options to promote crypto trading like crypto loans, stablecoin creation, asset tokenization, and much more., One such amazing service offered on Decentralized Finance platforms is Crypto Derivatives – the most popularized one being Bitcoin Futures.
So Exactly, what are these Crypto Derivatives? What’s the main reason for the Crypto Derivatives trading market to notice exponential growth since its start? Why is every Exchange platform considering showing the possibility of Crypto Derivatives trading to its users?
Before we understand the meaning of Crypto Derivatives Trading, let’s see a glimpse into What is Derivatives Trading. In the financial & investments market world, Derivatives are contracts that represent a deal to sell/buy an asset or a commodity, or any financial instrument at a pre-determined price and date in the future, between two participants.
In the case of Crypto Derivatives Trading, the two participants agree on a contract that speculates on the prices of cryptocurrencies on a certain date in the future. On the date of contract execution, the two participants have to oblige upon the selling & buying price of the crypto, irrespective of the market price (whether it is risen or fallen) on that particular date.
Cryptocurrency Derivatives trading can either be done on Centralized & Decentralized Finance Exchanges or customer-to-customer (C2C). Derivatives Trading is typically used to hedge against the trouble of explosive assets, specifically those which experienced sudden price oscillations. The aim of Derivatives Trading is not to earn profit but to mitigate risks against a volatile asset.
Just Imagine you want to guess the cost of oil. You could actually go and purchase barrels of oils physically and sell them when the prices have moved up. Certainly, this is impracticable and expensive as you would also have to think about storage and transportation fees. A much better technique would be to trade a contract/instrument whose price is tethered instead of oil.
For example, if the investor or trader indicates that Bitcoin might see an increase in its price in the future, he/she can invest in buying some bitcoins. Or else if he/she owns some bitcoins and predicts a fall in Bitcoin’s price in the future. He/she can sell them off, to avoid failure.
There are 4 various types of Derivatives which is commonly used in the financial markets. These are,
Forward Contracts are the simplest and the previous version of Derivatives that we know. It is a contract to sell something at a future date. The price at which the transaction will take place is decided in the present. However, a forward contract takes place between two opposing parties.
This indicates that the exchange platform is not an intermediate between these transactions. Thus, there is an expanded chance of counterparty credit risk. Another point that requires to be glimpsed is that if these contracts have to be reversed before their expiration, terms may not be favorable since each party has only one option. i.e., to trade with the other partaker.
This Futures contract is another most popularized derivative type which is similar to the previous contract – Futures. It also requires the sale of the asset commodity at a future date at a price that is decided in the present. However, Futures Contracts are traded on the exchange, not like Forward contracts that are traded Over the Counter (OTC).
This indicates that a crypto exchange is a mediator in the case of a futures contract. Therefore, these contracts are standard and the agreement can’t be modified in any case. The main point that requires to be mentioned is that in the case of futures contracts, the buyer and seller do not agree with one another. Rather, both of them agree with the exchange.
Options are represented as Derivatives. Because they acquire their rate from an underlying asset. While the buyer of these contracts has the right to exercise the contract, the seller is grateful to do so in case the contract gets retrieved by the buyer.
Swaps are definitely the most complex derivatives in the crypto market. Swaps permit the participants to exchange their streams of cash-flows. For instance, at a future date, one party may switch an uncertain cash flow for a specific one. The most typical example is swapping – a fixed interest rate for a floating rate. It assists investors or traders to move back and forth them fixed interest rates to variable rates.
Benefits of Crypto Derivatives trading
Traders swear by Crypto Derivatives trading and that is the reason why many crypto exchange platforms have been extending services at the same time. There are ample amount of benefits included in Crypto Derivatives Trading. Listed below are a few.
To mitigate the risks associated with the nature of crypto volatility, Many traders invest in the Derivative trading software platform. As we know, Bitcoin is the foremost coin that is a highly volatile cryptocurrency detecting extreme fluctuations in its prices. So that, to reduce the volatility risk associated with its continually varying market price, traders use Crypto Derivatives Trading.
As we mentioned above, traders and investors use Derivative trading, to decrease the risk factors from potential losses in crypto fluctuations. Right! When comes to the stock market, the Put option is used by traders in Derivative trading to offset the losses arising due to unpredicted situations in the future. Hence, Derivatives Trading is the finest when it comes to hedging risks.
Crypto Price Speculation
Speculating & Betting about the crypto prices are also the benefits of Derivatives trading. Traders use derivatives to bet on the future price of crypto to take advantage of price volatility.
Derivatives Trading Software is a software-driven trading platform that promotes the bid, selling, and buying of securities, contracts, and options based on the current underlying value of assets. Derivatives Trading Software works on two base modes – Future & Perpetual Modes.
Using Derivatives Trading Software, What are the advantages included?
By Nature, Blockchain is more transparent & secure compared to other platforms. But when you use the software that is provided by Blockchain & other crypto projects development companies, you can be assured of additional security levels on the exchange. The Exchange platform is secured from hackers using various security protocols. The user’s data is kept protected while also assuring that the user experience is not compromised.
Enriched Transaction Speed
A Robust matching trade engine will result in faster transactions. This will enable users to conduct more transactions each day. And this will, in turn, enhance the business volume for the exchange. Considering the highly volatile nature of the crypto derivatives market, a crypto exchange that can handle more business will be able to entice more users.
Crypto Derivatives Exchange Software can be custom-made to fulfill your business necessities. You can ask for more security levels or have new features. Proficient experts from the company will make the required changes to the source code to add the features you want to offer to your customers.
Lower Risk, More Returns
Using bug-free Crypto Derivatives Exchange Software will reduce the risk of losses in the exchange. Since the software has been created by the White Label crypto derivatives development company, you can be ensured that the exchange will not crash for the users and it also provides a seamless trading experience in a hassle-free manner. This will naturally streamline your customers to execute more transactions and more returns for you in a shorter period.
Technical Support Services
Crypto Derivatives Platform Development company will assist you at every stage of the business, right from submitting forms for legal approvals from the federal and state authorities to testing & customizing the crypto derivatives exchange, and developing a marketing plan to launch & promote the platform and securing that the exchange is regularly renovated to deliver its best at all times.
When it takes less time to launch a fully-fledged crypto exchange, it will provide you with more possibilities to develop your customer base. The Crypto derivative exchange development services offered by the development company are aspired at handing you a definite edge over your competitors and making the most of the market trends.
The Upcoming year 2023 is a valuable year for crypto trading. Be it retrieving its lost glory or the breathtaking launch of Ethereum 2.0, investors have discovered creative ways to mint returns than just holding tokens in the wallet. Although Crypto derivatives trading was around the corner, they gained traction when the total trading volume reached 2.159 Trillion USD.
Ultimately, financial institutions plunged at the opportunity to regale the enormous pool of token holders and got their Crypto Derivatives trading Platform development done.