AMA Recap ｜What Is Huobi Derivatives Warrants and Why Do We Need It?
Huobi Derivatives Warrant is a featured option product created by Huobi Futures, a derivatives trading platform under Huobi Global. Featuring mainly American options and European spread options, Huobi Derivatives Warrant enables users to increase their potential upside without putting much capital at risk.
“We would like to offer a simpler options trading experience that enables users to place an order in three simple steps. The premiums for purchasing options are lower when compared with those of other derivatives trading platforms, reducing the barriers to entry for new options traders. Moreover, we aren’t charging any transaction fees for now; we hope this can incentivize more users to trade on our platform,” said Du Jun, Co-Founder of Huobi Group.
On September this year, Huobi has completed the extension of Huobi Derivatives Warrant trading services to all its global market. On 29th September, Paul, Head of Huobi Derivatives, was invited to the Huobi Global Telegram group as the guest of the AMA on the Huobi Derivatives Warrant. Let’s see what they have been talking about!
🔹Q1: Why do we need Derivatives Warrants?
First of all, an option is an awesome tool to create various strategies which can’t be replaced by futures, we have now a big option market in the crypto world. We still find there is good space to advance the product in the market.
a) We found the format of exchange traded option is difficult for our clients to understand. We designed a more concise way to present options to suit their needs.
b) After we pact our product, we found we can sell the Derivatives Warrant cheaper compared with other exchange traded options.
c) Our clients need more flexible ways to trade options, they need touch option, barrier option, American option. Sometimes they want options with the specifics which can’t be found on an exchange, we offer more flexibility.
🔹2. How should we understand Derivatives Warrant premium?
A:It’s like option premium, for our American option, you can regard it as a sunk cost or a cost in exchange for insurance. option is right to buy/sell at a contracted price. U can buy a right to buy 1btc @40000, if price up to 41000, profit 1000, and maybe the option will cost u 200.If price fell, u lost 200.
You can still realize the profit conveniently. For our European option, there is more flexibility. The price of option goes in the same way as underlying asset and with nice leverage and without the risk of liquidation.
🔹3. What’s the difference between Derivatives Warrant and traditional option?
We try to simplify it and keep the essence. For example, on our app, we simplify our options into an ATM American option. Client can trade direction with three clicks on our app.Client can buy and sell option spread and american option at our web end with great price and less cost.We also make the spread options. It’s a very popular strategy and have very nice opportunities to trade in crypto. The best thing is that we found we can sell it at a much better cost than exchange traded options. For our web American option, client can have greater flexibility without worrying liquidity risk.
🔹4. Why Derivatives Warrant can be a cheaper way to trade than other option?
Yes, it can. If you buy a spread from us, you only need to pay the spread and commission one time, rather than twice if you create it at the exchange. We don’t charge settlement fees now, so the total cost can be much cheaper.
🔹5. When can we have Derivatives Warrant as a more effective way to trade?
It covers a lot of unique situations. For example, you can trade a small range bound with our spread. You can bet on a big rally without worrying about the liquidation.
🔹6. What’s the difference between Derivatives Warrant and perpetual swap?
Sometime you can trade a Derivatives Warrant as a leveraged position, a perpetual that won’t be liquidated regardless of price volatility. If you get some edge at market, you need to pay something. The advantage of no liquidation comes at price of premium. If you wanna pay to have a sleep, American option is a good choice.We have a example later.
🔹7. How can we choose between American option and European option?
You can get a good idea from this page. If you have concern on liquidity, American option is a better choice. If you wanna exit your position when the movement cool down, European option is good.
🔹8. How can we avoid the unnecessary liquidation by trading Derivatives Warrant?
It’s possible to lose your position and profit when you have a right view. If you have an American option like 1 BTC call at 43000 expiring in 1 week, you are holding a 22.5x leveraged position at BTC. If the BTC price fell to 38000 during the week then going back to 45000 at the end, you will still make a 2000 usd profit rather than being liquidated. It’s a bit tricky when you trade American options. You can’t sell it back, but you can realize the profit with futures. If u buy 40000 American put, and u want to lock the profit at 41000, u can buy half future, 1BTC option & long 0.5 BTC future. If prices go up, futures win, if prices fell then options win.
🔹9. What’s our next product?
A: We will launch a touch option next month. It will be the first one in the industry. Most of the time, clients can always trade on trends or reversions, but sometime, they may want to trade a specific price. Like Alice believe BTC will touch 45000 USD but she doesn’t want to create a complicated position for it, she can just buy a 45000 DOT option.
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Trading in digital assets comes with high risks due to huge price fluctuations. Users should be fully aware of the risks associated with digital asset trading and make prudent trading decisions.
Huobi Global’s announcements and information do not constitute investment advice, and Huobi will not bear responsibility or provide compensation for direct or indirect losses arising from trading decisions whilst relying on this information.