{"id":37243,"date":"2019-05-16T07:00:43","date_gmt":"2019-05-16T04:00:43","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=37243"},"modified":"2025-08-29T14:14:52","modified_gmt":"2025-08-29T11:14:52","slug":"what-are-crypto-derivatives-and-how-do-traders-profit-from-them","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/what-are-crypto-derivatives-and-how-do-traders-profit-from-them\/","title":{"rendered":"What are crypto derivatives, and how do traders profit from them?"},"content":{"rendered":"
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1<\/span><\/p>\n

What are derivatives?<\/strong><\/p>\n

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Attention! The article is outdated and awaiting an update.<\/strong><\/div>\n<\/blockquote>\n
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A derivative is a financial contract on the future price of a cryptocurrency, security, commodity or service. The subject of such a contract is called the underlying asset. Buyers and sellers of derivatives do not own the underlying assets; they buy and sell the right to execute the contract.<\/div>\n<\/div>\n
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2<\/span><\/p>\n

Why use derivatives?<\/strong><\/p>\n

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To reduce risk and to profit from price moves. This applies to both traditional and crypto exchanges<\/a>. Here are some examples.<\/p>\n

If trader Vasily fears that bitcoin will drop to $3,000 by next Tuesday, he can make a contract with trader Arkady to sell him bitcoins when the price falls to $3,500. In this way, derivatives help reduce risk.<\/em><\/p>\n

And if trader Gennady wants to buy bitcoin at $3,500 before Tuesday, he can buy the contract from Arkady, and then Vasily will sell the bitcoins to Gennady instead. Vasily receives money from Gennady without waiting for the agreed price. By selling and buying this contract, traders can earn depending on the price of the underlying asset. This is how derivatives are used to make money.<\/em><\/p>\n<\/div>\n<\/div>\n

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3<\/span><\/p>\n

How do traders profit from crypto derivatives?<\/strong><\/p>\n

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Traders profit from changes in the price of the underlying asset. Because the future market price of the underlying is unknown, all participants take on risk. If by the time the contract is settled the asset has fallen, the seller profits and the buyer loses. If the asset has risen, the buyer gains.<\/p>\n

To amplify returns, a trader uses leverage \u2014 a loan provided by the exchange. The size of the leverage is proportional to the trader\u2019s deposit. This allows larger trades. The amount of leverage depends on the exchange. Most exchanges charge a fee for leverage.<\/p>\n

Suppose the current BTC price is about $8,000. Arkady expects it to fall. He deposits 1 BTC on an exchange, chooses 10x leverage and sells 80,000 contracts at $8,000 per 1 BTC. Two hours later, bitcoin drops to $7,600. Arkady then buys back the same contracts and books a net profit of 80,000\/7,600 \u2212 80,000\/8,000 = 0.52 BTC. He now has 1.52 BTC in his account.<\/em><\/p>\n

Note: the sponsor of this card, ShortBit<\/a>, does not charge a fee for leverage. The exchange earns from standard transaction fees. Fees on ShortBit are 0.075% for sellers and 0.025% for buyers.<\/strong><\/p>\n<\/div>\n<\/div>\n

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4<\/span><\/p>\n

What kinds of crypto derivatives exist?<\/strong><\/p>\n

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