Trading instruments can be a profitable activity. The problem is finding great instruments to trade on the best platforms. Without information, traders who fulfill the function of keeping capital flowing within asset spaces can’t decipher and choose these.
For the crypto space, traders keep assets moving and liquid. They maintain the volatility we know the cryptocurrency space for. As profitable as digital assets are, there are risks associated with trading. The best risk mitigation strategies allow for exposure to market upsides while reducing the downsides.
Trading in derivatives provides the best basis for this and more.
What Are Crypto Derivatives?
Cryptocurrency derivatives are contracts between parties that derive their value from cryptocurrencies. These cryptocurrencies serve as the basis for contractual obligations. Such derivative contracts usually have terms between the parties for price prediction of the underlying asset in the future.
The great thing about cryptocurrency assets is that they provide many benefits to traders while keeping risks low. First, maximum profits are available to traders without the risks involved in trading the underlying asset.
The second benefit is that traders choose higher price differentials in making trades, thus increasing their profit potential. It is as opposed to trading the asset directly.
Third, traders now have access to a broad range of options to choose from and better trading conditions without exposure to market volatility. It allows profit stabilization for trades.
What Kinds of Crypto Derivatives Exist?
Four kinds of crypto derivatives exist in the markets and on trading platforms. They include futures, options, swaps, and perpetual contracts. Futures are straightforward contracts that deal with the price differentials of assets at a particular time in the future.
Options are contracts that deal with the right to buy or to sell the underlying assets at a particular time in the future. Swaps are contractual agreements between traders to exchange cash flows based on the underlying asset in the future, and perpetual contracts are indefinite with no settlement period.
These four contracts determine the price actions of cryptocurrencies, as traders prefer to use them for many uses and utilities.
Where Can Crypto Derivatives be Traded?
Derivatives get traded on centralized crypto exchanges and decentralized platforms. These entities allow for contract trading based on market conditions. The choice of the trading platform is essential. Different platforms offer many features.
These features range from reduced commissions to user-generated markets, automated market making, automated liquidations, stop losses and take profits, auto deleveraging, leveraging of trading positions, insurance, and more.
Decentralized trading platforms hold allure for traders. They present several benefits as opposed to their centralized counterparts. These include minimal Know-Your-Customer (KYC) requirements, privacy, reduced exposure to hacking and higher security, reduction in market manipulation and insider trading, reduced transaction costs, and more.
Decentralized trading platforms also allow for greater control over traders’ funds, giving them the flexibility to move funds in and out as needed. There are several decentralized derivative platforms out there. Here are some of them.
SynFutures Enables User-Generated Markets And More
SynFutures is a decentralized open-ended derivatives trading platform that offers trading of artificial assets and much more. With synthetic automated market-making (SAMM), SynFutures allows for asset listing via a single token model. SynFutures has created an ecosystem where traders can trade assets permissionlessly. The industry focus shifts from infrastructure to accessibility.
SynFutures also offers perpetual futures contracts that are hard-pegged to spot price conditions that work even within illiquid situations. That flexibility gives traders the ability to cover their positions in slim trades.
dYdX Offers Highly Leveraged Long And Short Positions
dYdX is one exchange that offers high leveraged positions to traders. These positions enable traders to maximize their gains while preserving liquidity simultaneously.
With support for leading industry wallets, dYdX gives traders the tools to trade derivatives with minimal KYC requirements. dYdX also offers a decent interest in deposits (5%) and allows traders to lend and borrow stablecoins at fair rates.
Fees for perpetual contracts vary depending on roles played within the trade. The great thing is dYdX offers easy access. All traders need to do is to connect to their wallets, deposit, and trade.
Synthetix Offers Minting of Assets
Since its founding, Synthetix (formerly known as Havven protocol) has offered a dual-purpose approach to traders. Using its primary token SNX and “Synths”, artificial assets created for trading via Mintr, the artificial asset minting app, traders can get involved in the Synthetix ecosystem through the various offerings available.
Traders lock their SNX tokens as collateral for minting Synths. The Synths are the assets used for trading different derivatives. With a primary Synth, the sUSD stablecoin, Synthetix allows traders to trade all kinds of assets within a peer-to-peer contract trading framework.
Synthetix offers a wide range of assets and has given traders a novel approach to trading derivatives.
Will Crypto Derivatives Take Over The DeFi Space?
Many people within the DeFi industry have wondered if crypto derivatives will be the new DeFi standard. The possibilities exist for this to happen. Decentralized crypto derivative platforms offer traders many unique ways to trade and preserve capital. Innovation is prime within this space. As long as innovation continues, the DeFi space will see crypto derivatives lead the trading space.
Disclaimer: The ‘Crypto Cable’ section features insights by crypto industry players and is not part of ZyCrypto’s editorial content. ZyCrypto does not endorse any company or project on this page. Readers should conduct their own independent research before taking any actions related to the company, product, or project mentioned in this piece.