Crypto Futures Versus Crypto Options

Crypto options and futures are essential trading instruments for traders. Many years ago, trading was considered an exclusive activity meant only for financial experts. However, with the evolution of trading instruments like futures and options, trading has been made available to the public, such that anyone can get involved with the trading business. They offer speculations and calculated risks, hence increasing the rate at which people trade digital assets. Although both futures and options are relevant in the trading world, they are not similar in their operation modes. Whereas futures tend to be more cost-effective, options seem to attract lesser risk. If you are a crypto trader, you can make your choice on either of the two based on your risk appetite and liquidity assessment.

What Are Crypto Futures?

Traders can use crypto futures to minimize volatility while taking advantage of price fluctuations. They are derivative products through which traders (buyers and sellers) can come to mutual agreement to trade at a pre-established price and date. Notably, the contracts traded in the futures market do not carry the real value of the cryptocurrency used. Because your contracts exist on pre-mediated terms, a futures market doesn’t allow you the economic benefit that commonly comes with trading crypto.

Fundamentally, crypto futures trading affords you trade with ease despite price changes. It’s not wrong to acknowledge that futures contracts are similar to placing bets because your overall rewards are dependent on your predictions. Participants can go long or short depending on risk speculation and trading signals. Going long means you are anticipating a price increase, while going short means you are anticipating a price decrease. Also, you can gain access to leverage in most futures markets which allows you to trade futures contracts without having to pay on an immediate rate the full value of a contract. This means that you can borrow the needed capital to finance with a relatively smaller equity stake.

Types of Crypto Futures Contract

There are two products of futures contract that are accessible to users:

USD-Margined Futures Contracts

A contract of this nature uses USD-pegged coins as the native currency for settlement. Not only does this futures type support both delivery and perpetual contracts, but also it offers leverage of up to 125. This means that participants can hold positions without having to worry about an expiration date.

Coin-Margined Futures Contracts

Coin-margined futures contracts bear much similarity with USD-margined futures contracts. They both support perpetual and delivery contracts, but participants of coin-margined future contracts can settle via multiple cryptocurrencies and can maximize profit during bull runs.

What Are Crypto Options?

Crypto options are a form of derivative contract that provides the purchaser with the right to buy or sell an asset at a pre-established price and date. There are two trading right options: call and put options. While the ‘call’ option represents the buying right, a ‘put’ option refers to the selling right. Just like other derivatives, crypto options give traders an opportunity to speculate and take advantage of price fluctuations. One major advantage of crypto options is that it offers participants a cost-efficient trading platform. Most traders consider options in relation to crypto futures.

Types of Crypto Options

There are two options types to evaluate your trade:

• Call — This is your right to buy an underlying asset.
• Put — This is your right to sell an underlying asset.

Benefits and Differences of Crypto Futures

Crypto futures and options both have benefits as well as differences, which inform the choice of traders on their investment plan.

Cost-Effective

In crypto futures, you do not have to pay upfront before a contract is issued. Not only are the costs of your contracts reduced, but your rewards are not compromised once our prediction happens. You may have to pay a premium for crypto futures dependent on the exchange.

Resistant to Time

Transactions in crypto futures can only be executed at the predetermined contract price and date. In that light, time doesn’t affect the valuation of the contract.

On the other hand, crypto options have to meet certain modalities to actualize their profits. This means the closer the expiration date, the less valuable the contracts become. Unlike futures contracts that aren’t adversely affected by time, the valuation of options contracts are affected by time.

Size

The futures market has been in existence for a long time. This means that futures have gathered several traders over the years, which consequently makes the market even larger and therefore holds a higher count of traded cryptocurrencies when compared to crypto options consisting of smaller contract units. The futures market attracts big market players and traders due to its size and turns it into a viable trading ground.

High Liquidity

Compared to the crypto options market, the futures market enjoys a larger space and therefore has more liquidity and unlimited accessibility. The options market has low liquidity since big trades take more time to settle.