Tuesday, August 16

Bitcoin derivatives are not intended for all traders, are they for you?

Key facts:
  • By trading derivatives, more exposure to bitcoin can be achieved with less investment.

  • Managing leverage requires caution, as it amplifies risk.

For those who already have experience in buying and selling bitcoin (BTC) on the spot market (cash, immediate payment), venturing into the derivatives trade of that cryptocurrency may seem like an attractive option. Interviewed by CriptoNoticias, Luuk Strijers, commercial manager of the Deribit exchange, specialized in derivatives, addressed the different products it offers, exposing the advantages of each one, according to the requirements of investors.

Strijers notes that the main investment modalities offered by a derivatives exchange are options, futures and perpetual contracts. These modalities have in common that can offer greater exposure to bitcoin, or another cryptocurrency, with less investment than in the spot market.

In the spot market, the amount of an investment in bitcoin is equivalent to the exposure that you want to have of that cryptocurrency. On the other hand, in derivatives markets, through leverage, you get an exposure that is several times the amount invested, says Strijers.

Once the investment in a perpetual contract, an option or a bitcoin futures contract has been made, if the price action is favorable to what is expected by the investor, the gains are quite attractive compared to those obtained in the spot market, says Strijers . He cautions, however, that the losses would also be proportionally large, if the price goes in the opposite direction to those expected.

Strijers explains the differences of the three modalities of derivatives with examples and clarifies which is the most appropriate, according to the periods contemplated for the investment. These can be of few hours, in the case of perpetual contracts or of several months, if contracts of futures of bitcoin are acquired.

Bitcoin derivatives market growth

Derivatives have a long history of trading traditional assets. Its current volume, considering all markets, is 10 to 20 times the volume of spot trading. The same relationship occurs between the volume of bitcoin derivatives and the spot trade of this cryptocurrency, says Strijers.

In addition to the volume traded, derivatives, especially bitcoin options, show increasing complexity. Someone who enters Deribit, interested in the options market, for example, can find up to 100 different products, says the executive.

This makes us a little more niche. As users must understand the different products to choose the ones that best suit their requirements, we tend to focus on education. That people understand what they are doing. Otherwise, they will flee from trading.

Luuk Strijers, commercial manager of the Deribit exchange.

The derivatives market will continue to grow, says the manager, and believes that it is important to have some kind of exposure or understanding of the offerings in that market. But nevertheless, the executive thinks that the derivatives market is not for all traders.

I’m not going to pressure you to buy or sell options, because it’s something only for a select group of people. But regardless of what your level of knowledge is, I think you should have some knowledge of the enormous impact that derivatives will have on all of our lives.

Luuk Strijers, commercial manager of the Deribit exchange.

You can access here to the complete CriptoNoticias interview with Luuk Strijers, on our YouTube channel.


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