The Ever Growing World of Crypto Derivative Markets

July 1, 2020      Vandana Malik

Cryptocurrency and blockchain technology is playing a huge role in transforming the complete financial ecosystem and in changing the mindset of the people regarding this. Though cryptocurrency has been widely adopted by people across the world and is flourishing, this one fact cannot be ignored that it is associated with huge risk. Now to have some kind of insurance to the risk associated with cryptocurrency, institutional investors tend to invest in the derivatives market than the spot market.

Crypto derivatives are that financial product which acts as a hedge against the uncertain risk which is there in the market. Crypto derivatives could be understood as a financial contract in between two or more parties which lets them buy or sell their assets at a predetermined time and price. Now as the crypto adoption is increasing rapidly, the crypto derivatives market has also seen quite an impressive growth.

Futures and Options market and how they work?

While talking about the crypto derivatives market, two of the most prominent ones are the Futures market and Options market. Even though both Futures and Options markets are a financial product and focus on one prime goal, there are still a lot of differences in both of them.

Options

One of the major things that the users like about Options is that they do not put any kind of obligation on the investors or traders. Even though two or more parties get in contract to sell or buy their assets at a fixed price but they are not obliged to do so after a certain time or period. Options are further divided into two categories – Call and Put. Call options are for buying a stock while Put is for selling the one.

Futures

Unlike Options, Futures put the parties under an obligation to buy or sell their digital assets at a specified price and time. The futures market is considered as true protection or security for the investment. It has been seen that Futures is one of the most common and famous one in the crypto derivatives market and generally used by institutional investors.

It is quite clear that neither Futures nor Options have any kind of independent value and they are completely dependent on the value of an underlying asset. Generally, the huge investors of the crypto market become the participants of both Futures and Options markets. Both Futures and Options are financial securities and they are for a specific period of time say two-three months or even more than that.

Growth in trading volume of crypto futures and options 

Crypto futures have seen quite a great success which people must not have expected during the time it was introduced. One of the most common and prominent ones of the crypto futures is Bitcoin Futures. Bitcoin futures were introduced back in 2018 and it has been seen that there has been a huge growth in Bitcoin futures ever since it has been released.

According to data published by CME Group back in 2018, the average daily volume in the second quarter of 2018 grew by 93% as compared to the previous one. This was followed up by 2019 where there has been a huge increase in average trading volume per day. It was recorded that in August 2019, there was a 132% increase as compared to the previous years. As far as crypto options is considered, here also Bitcoin Options are quite popular and it has again seen quite a great success.

Different crypto derivatives exchange 

There are many crypto derivatives exchanges out there which provides you with a facility of derivatives trading. Some of the prominent ones are.

 

  • BitMEX – Among all the derivatives exchanges, BitMEX is the largest and prominent one. It has been seen that if compared with the major crypto spot exchanges, BitMEX has secured the highest trading volume. The exchange deals in different derivatives contracts which includes Bitcoin (XBT), Ethereum (ETH), Litecoin (LTC) and many others.
  • OKEx FuturesThis is a derivative which has been launched by OKEx which is one of the largest crypto exchanges. This derivatives exchange focuses on the trade of contracts for various digital assets including Bitcoin, Litecoin and many others. The futures contracts on OKEx are settled using BTC and then the contract value is calculated using USD.
  • Binance Futures Binance Futures is coming from the largest crypto exchange, Binance. As claimed by the firm, it is the fastest-growing crypto derivatives exchange among all and it offers the highest leverage with a 125x margin. The firm also uses its risk management technique in its futures contract in order to provide best products to its customers. 
  • Deribit DerivativesIt is a derivatives platform which was launched back in 2016 with the major focus on Bitcoin Futures and Options. The firm aims to be at the forefront of the crypto derivatives market. At present time, Deribit is counted among the top derivatives platforms which are offering derivatives trading across the world.

Conclusion

There is a huge list of companies which offer derivatives trading and it has been seen that a lot of new companies are also entering this space in the crypto market. Over the past two years, the crypto derivatives market has seen huge success with a wider adoption among the institutional investors as well as regular crypto users.

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Vandana Malik
Vandana Malik

Vandana has received Master of Arts degree in English from GEU Dehradun. She is currently working as a content writer with Agio Support Solutions and earlier worked as a sub-news editor at Business News and Information Services Private Limited. She is an enthusiastic content writer and aims to bring a compelling yet informative content to the audience. Meanwhile, enhancing her own knowledge in the cryptocurrency and blockchain industry.