In the Bitcoin derivatives market, investors enter into an agreement or contract to buy Bitcoin at a predetermined price and at a specific time in the future. As mentioned above, investors in this market do not own real Bitcoins, but trade with the speculative price of Bitcoin. Bitcoin contracts, which can be futures, perpetual contracts, swaps or options, derive their value from the value of Bitcoin. The contract value is calculated differently depending on the type of contract you buy or sell. The value is always expressed in units of the currency settled. We offer two types of contracts: one of the main disadvantages of futures trading is that investors do not own the underlying assets and secondly, traders with high leverage run the risk of being liquidated and losing heavily due to false speculation. After making a deposit in the BTC wallet, users will need to transfer or reload the individual trading accounts they wish to trade with. Click here to read more information about financial trading accounts. Cryptocurrency derivatives have seen a number of developments in recent years.
In 2020, old cryptocurrency derivatives platforms set new records in terms of transaction volume as new players with innovative products poured in. For the first half of 2021, trading volumes for spot and derivatives were identical, and it wasn`t until June that crypto derivatives trading surpassed spot trading. However, crypto derivatives trading is a high-risk and rewarding venture that is best suited for experienced traders and investors. Indeed, many exchange platforms allow the use of leverage. This means that futures traders can place more speculation and commit to a much larger position than they can cover with their current balance. If market conditions are good, it can lead to big gains, but if there is a rapid slowdown, it can lead to big losses. For these reasons, crypto futures exchanges have come under further regulatory scrutiny in recent months. As Bitcoin derivatives represent a new frontier in the financial markets, they have quickly gained popularity to become one of the most traded products. At the forefront are Bitcoin futures, which have become the most traded cryptocurrency derivative since 2017. The average daily trading volume on Bitcoin futures is about 3,500 contracts with a cumulative value of more than $100 billion. Considering that the value of Bitcoin in the spot market has dropped significantly since December 2019, these numbers are impressive.
Statistics show that investors gain confidence in derivatives and even choose to trade them instead of trading them on the spot market. In Bitcoin futures, for example, traders can hedge Bitcoin prices against the volatile market. Contract quantity is simply the number of contracts you want to add to your order. No, unlike futures, there are no settlement options for perpetual contracts. A derivative is a contract in which value is based on the performance of the underlying company, which can be a financial asset or a set of assets such as commodities, currencies and stocks. Derivatives are typically used to mitigate the risk or increase the risk of certain price movements, also known as speculation. Operationally, one of the potential drawbacks of cash cryptocurrency trading is that investors must first set up a digital wallet with online platforms and exchanges. This process can be difficult for those who are not familiar with the crypto landscape.
Second, some web-based exchanges are more susceptible to technical errors, application freezes, and security issues. Therefore, it is potentially risky to leave cryptos in your spot exchange wallet, as you may not be able to access them if the markets are extremely active. BTCUSD is an example of a reverse contract quoted in USD and settled in BTC. For BTCUSD contracts, the contract size is always equal to 1 USD. Let`s take the following example: The over-the-counter (OTC) market is a type of spot market where transactions are based on contracts that are openly concluded between two parties and are not subject to the policies of the exchanges. In addition, OTC trading completely mitigates the risk of slippage as traders agree in advance on the final execution price. When trading crypto futures, especially with leverage, the gains are more substantial than in spot markets. In addition, futures contracts give investors the opportunity to apply more flexible trading strategies, e.B.
Short or long, diversification and hedging against other price movements. So you can do more than just buy and sell cryptos. Linear contracts are useful if you expect prices to fall and want to short an asset. Suppose you have a short linear BTCUSD contract position – when prices drop, you can accumulate your profits in USD. If you were to accumulate your profits in BTC, the USD value of your profits would decrease if the price of btc decreased. Linear contracts are margins in USD, quoted in USD and settled in USD. You can only trade linear contracts with your USD contract trading account. Trading perpetual contracts amplifies the outcome of any trade, which means you can make bigger profits.
But it also means that a drop in the price of your commodities will liquidate your shares and close your position much faster. It is important to note that Phemex provides you with tools to manage your risks. Below is a chart of the BTC/USDT spot trading pair on Phemex. BTC is the base currency, which is the first currency to appear in the currency pair. This is followed by USDT, which in this case is the currency of the exchange rate. In this market, traders buy and sell BTC for USDT, or they can use USDT to buy BTC. First, you need to transfer money to the appropriate contract trading account. Different contract trading accounts support different types of investments. For example, a BTC contract trading account requires BTC to be transferred from your spot wallet. Since Phemex does not currently support USD deposits, to transfer to a USD contract trading account, you must first convert the USD assets in your spot portfolio. Once the money has been transferred from the cash wallet to the contract trading account, you can start trading contracts.
A futures contract is simply an agreement between two parties to sell or buy an asset on a fixed date of “futures” at a fixed price. Imagine two investors entering into one of these contracts, the underlying being Bitcoin. One promises to sell Bitcoin at an agreed price, while the other promises to buy it. By the time the contract expires, both must keep their promise, regardless of the price of Bitcoin. If the future price is higher than the originally agreed price, the seller loses and the buyer wins. The opposite is true when the price drops. Let`s review an example with our recently added BTCUSD linear contract. Although you trade based on BTC`s price movements, you don`t need to hold BTC in your account. To open positions, use USD as the margin instead. Any profits or losses you have incurred at the time of closing your position will be paid or deducted in USD.
Of course, there are many more complexities in trading contracts, but the basic idea is that you bet on the price of an asset like gold or Bitcoin to go up or down. .