1. What are crypto derivatives?
Crypto derivatives are financial contracts whose value is linked to an underlying cryptocurrency such as Bitcoin or Ethereum. They allow traders to gain price exposure, hedge positions or speculate without necessarily owning the cryptocurrency directly.
2. What is the difference between crypto futures and perpetual contracts?
Traditional crypto futures generally have a predetermined expiration or settlement date. Perpetual contracts have no fixed expiry and instead use periodic funding payments to help keep their prices aligned with the underlying spot market.
3. How do crypto options work?
Crypto options give buyers the right, but not the obligation, to buy or sell an underlying asset at a specified strike price. Calls generally provide upside exposure, while puts can be used for downside exposure or hedging.
4. Why is leverage risky in crypto derivatives trading?
Leverage allows traders to control positions larger than their deposited collateral, magnifying both potential gains and losses. Sharp adverse price movements can trigger liquidations, potentially causing traders to lose some or all of the collateral supporting a position.
5. What do open interest and funding rates indicate?
Open interest measures the value or number of outstanding derivative contracts, helping indicate market participation. Funding rates apply to perpetual markets and can provide insight into whether leveraged positioning is leaning more heavily toward longs or shorts.
