CD Billboard Hits: The Top Crypto Derivatives
CDs have grown to be one of the most popular developments in the cryptosphere. We ain’t talking about your regular compact discs, we mean crypto derivatives. The trading volumes of CDs have hit the roof on different DEXs. Interest keeps growing and they are certainly redefining the future of crypto trading.
Have no idea what CDs are? Catch up here
For the piece we’ll be hitting you with the common genres of CDs so you know how to keep the money rolling in.
Futures
One of the most popular forms of derivatives in DeFi. It allows you to buy and sell an asset on a specific future date at a fixed price regardless of the market prices. Futures are generally considered safer and more reliable and are usually traded on exchanges. That’s why top financial institutions like Goldman Sachs recently opened doors to trading Bitcoin futures. Traders generally trade futures to hedge against investment risks of trading in a volatile crypto market.
Synthetic Assets
A fairly new type of derivative. These are digital representations of derivatives launched by smart contracts. In other words, they are tokenized derivatives. They are easily accessible and the attractive idea is that they can be created by anyone on open DeFi platforms. Examples of synthetic assets existing today include Universal Market Access (UMA), Synthetix and a host of others.
Options
This is another form of derivative, although quite similar to futures. With options, the traders (i.e. buyers and sellers) agree on a specific price for an asset to be bought and sold at a specific date. The catch here is that the buyer has no obligation to buy the asset on the particular date. There are typically two types of option contracts: call option (where traders agree to buy an asset at a price and specific date); and a put option (traders agree to sell an asset at a price and specific date).
Forwards
These are typically the same as futures but with a slight unique difference. Forwards are traded on over-the-counter (OTC) exchanges and not on centralized exchanges. This makes them a lot riskier and requires caution on the side of the trader.
Perpetuals
Perpetuals are also similar to futures in the sense that traders either long or short positions based on the predicted future price of the underlying asset. However, one key way they differ from futures is that perpetuals don’t have a settlement or expiration date. They can be held indefinitely.
One of the reasons perpetuals appear to be more suitable for investors looking to take long positions is that they typically experience lower price volatility relative to the underlying asset’s price movements. It has grown to become one of the most popular and versatile forms of derivatives today in DeFi.
With cool stuff like low execution fees, hedging opportunities, protection from volatility and the possibility of higher liquidity given the growing interest, CDs trading offers you more incentives. But like we always tell you, always do your own research before diving in. Know the necessary terms well, find out about the various risks involved before trading and always stay cautious.
