Top 4 cryptocurrency derivatives for traders and investors

Crypto derivatives market is booming. In 2020, the trading volume of crypto derivatives reached 2.7 trillion USD, recording 159.4% rise from 2019. In 2021, the market surged even further, recording a whopping 4.96 trillion USD- and the figures are only rising. One of the best aspects of crypto derivatives is that they allow the crypto industry to take part in the crypto industry yet in a low-risk and more economical zone. However, the biggest benefit of cryptocurrency derivatives is a powerful hedge against extreme market volatility. Read more to know buy crypto instantly.

Akin to the traditional finance market, the crypto scene too offers 4 major kinds of derivatives. We will go into the details of crypto derivatives but before that let’s gather a basic understanding of the concept of crypto derivatives.

Crypto derivatives- overview

The concept of

derivatives is the same as the notion of derivatives in the conventional finance and trading scene.

Derivatives can be defined as contracts made between a seller and buyer regarding the selling of an underlying fiscal asset. The contract will only be made if both the parties have agreed about the asset and the sale. It’s to note here, derivatives don’t hold any kind of inherent value- rather derivatives derive value from performance of underlying assets.

In regard to crypto derivatives, the underlying asset is a cryptocurrency or a pack of cryptos. For example, if it’s a Bitcoin derivative, it derives value from the value of Bitcoin.

Types of cryptocurrency derivatives

Well, first things first, there are two broad divisions in the world of derivatives (even crypto ones)- exchange-traded derivatives and OTC derivatives. The exchange-traded options are always standardized and regularized. But, you can’t expect a high level of regulation with OTC crypto derivatives.

Exchange-traded crypto derivatives

  • Crypto futures

Futures crypto derivatives refer to an agreement between a seller and buyer about selling a crypto asset at a particular price. The date and time of the sale are also mentioned in the contract. Another main feature of the futures  crypto derivatives is the expiration date of the contract. If the seller can’t sell the crypto asset within that set expiration date, the agreement would be considered null and void.

Futures crypto derivatives are mostly popular among institutional investors. The data derived from futures contracts are largely utilized to track future price of the underlying asset.

  • Crypto options

The options crypto derivatives are another popular contract instrument. The terms and conditions are almost the same as the futures crypto derivatives –  seller and buyer will sign an agreement stating that a chosen crypto asset would  be sold and bought at a particular date in future. However, there is one major difference between  the two crypto derivatives. Unlike futures derivatives, the options derivatives do not make it “compulsory” for the buyer to purchase the underlying asset. If the terms or the price don’t look favourable, the buyer has the option to not purchase the chosen asset.

It’s to note here, options crypto derivatives are sub-divided into two broad categories- Put and Call, and also European and American. If you choose the Call option, you will have to buy the chosen asset on a pre-agreed date given in the agreement. If you choose Put, you will have to sell off the asset on the specified date.

You can choose American crypto derivatives if you are in a rush. It’s because the American derivative contract allows investors to sell off even prior to the expiry date of the contract.

In case you opt for European options crypto derivatives, you will have to sell exactly on the pre-defined date.

  • Crypto perpetual swap

A favorite of the day traders, perpetual swap is another popular derivative in the finance scene. In the crypto sphere, the perpetual swap crypto derivatives instrument was launched in 2016, by a leading crypto exchange.

Interestingly, perpetual swap crypto derivatives are the same as futures derivatives. Just like a futures crypto derivative, the perpetual swap contract is made in advance between buyer and seller. The agreement specifies the particular price of purchasing an underlying crypto asset. But, there is a key difference between the two crypto derivatives. Unlike the futures contract that comes with an expiration date, there is no expiration date with perpetual swap derivatives.

Perpetual swap crypto derivatives offer the flexibility to keep positions open for a lengthy period- as per the specific needs of the trader. However, if you keep it open for a longer time, you will have to pay a funding rate or holding fees. Additionally, your derivative account must have a minimum margin amount.

OTC-traded crypto derivative

  • Crypto forward derivatives

Forward crypto derivatives are exactly the same as futures derivatives, except the fact that the forward contracts are available on OTC platforms. These  platforms are not always regulated and there could be some rotten apples in the basket. Thus, you never know that your counterparty on the other side of the contract will honor the terms and conditions of the contract. However, when it comes to forward derivatives in the crypto scene, some OTC platforms try to bring some credibility to the trade through incorporation of smart contracts.

Advantages of crypto derivatives

We will wind up the article with a small brief on the key benefits of crypto derivatives.


The concept of Hedging refers to a scenario where you are able to safeguard your portfolio (crypto) from erratic market conditions. The crypto industry is both famous and notorious for its extreme volatility risks. In fact, it’s this “volatility” aspect that prevents many investors from investing in crypto. This is where hedging comes to help, especially when a crypto gets into a bearish phase.

Improved liquidity

The crypto derivatives have shown to improve market liquidity. Enhanced liquidity allows more flexibility and convenience in closing and opening positions.

Portfolio diversification

If you are looking to make it big with crypto investment and trading, don’t just stick to one particular batch of investment. Rather you should always diversify your portfolio to create multiple streams. When it comes to crypto investment, you can invest in crypto derivatives, added to your crypto holdings.


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