Crypto derivatives

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Assalamualaikum steemians

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How are you? Hope so everyone would be safe and sound just like me as I am also safe Alhamdulillah....

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I am going to talk about crypto derivatives that what are these so I would start from its basics and then I would move forward on their types and on their scenerio examples and at last I would really love to share some of its Strategies and risk management.

There are some financial instruments which extract their value by an underlying crypto assets like BTC,ETH etc.Crypto derivatives are basically responsible for permitting the traders to speculate ups and downs in price of underlying particular crypto assets without any need to hold them so it provides great opportunity for management of risk and for getting more exposure to crypto market.

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Types of Crypto Derivatives

1. Futures: Futures is basically one of the most important type of crypto derivatives which mean the agreement to trade particular crypto asset at a set and specified time.

2. Options:Options is another crypto derivatives which are some contracts that provide right to the holder but not like him to do any obligation for purchasing or selling a particular Crypto token at some set and specific price.

3. Perpetual Swaps:Perpetual swaps are also some of the contracts that have in replication of price movements of some underlying asset without considering that when it's date could be expired.

4. Binary Options:Binary options are also contracts that check that underlying price of asset is fulfilling some particular conditions or not and after that it fix some fixed amount for it if certain conditions meet.

Practical Example

You can imagine that there is a trader and his name is Ali and is bearish at price of ETH for short time period because of some regulatory concerns.He sells a futures contract of ETH whose price was around $2,000 and it is going to expire in 2 weeks.Size of contract is of 10 ETH.

Scenario 1:Suppose at time expiry now ETH price has been declined to $1,800.

• Ali would purchase 10 ETH at $1,800 and out of favour of futures contract it delivers them and then in this way it pockets a benefit of $2,000 (10 x ($2,000 - $1,800)).

Scenario 2: Now this is when thereum's price rises to $2,200 at expiry date.

• Ali has purchased now 10 Ethereum at $2,200 and again delivered them against the futures contract and in this way there is a significant loss of $2,000 (10 x ($2,200 - $2,000)).

Now from above example it is very clear that how future contracts are permitting Ali who is I trader to short Ethereum by getting profit from significant decline and fluctuation in price movement but limiting his significant losses in this way.

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There are some of the flexible ways of management of risks and their are some trending opportunities also regarding crypto derivatives which I am elaborating below.

• There should be implementation of hedging so that you may not expose more with the price movements.

• There is another which is speculation which is also important to implement.

• There is a need to exploit price difference between market while getting involved with crypto derivatives.

• If I talk about some risks then price fluctuations and difficulty in closing positions and counterparty risks which involved default by and third party are some of the risks need to be considered.

That was all about my explanation about Crypto derivative along with proper scenarios explained and there were also risk management strategies I have shared so hopefully the topic is clear for all of you and interesting to understood.....

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Thanks

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