Derivatives

Derivatives are financial instruments whose value or settlement depends on the price, index, rate, or another reference variable. In crypto trading, the underlying asset is often BTC, ETH, or another cryptoasset.

A derivative does not necessarily involve direct transfer of the underlying asset. Instead, the parties enter into a contract that defines how the financial result changes as the underlying reference changes.

Main types

• futures;
• perpetual futures;
• options;
• swaps and other derivative contracts.

Derivatives can be used for speculation, hedging, risk management, and more complex trading strategies.

Main risk

Derivative instruments can use leveraged collateral. In that case, a relatively small movement in the underlying asset can produce a much larger change in the position result. Insufficient collateral can lead to liquidation.