Products Of Crypto Derivatives Trading And Trading Strategies

 

The cryptocurrency trading sector is gradually evolving into a complete ecosystem. Gone are the days when only conventional trading of coins was encouraged. The market has matured and has bestowed the traders with sophisticated and mature financial instruments – Crypto derivatives. 

If you are looking to start trading derivatives, then this is the only article you need to read to get up to speed. I have used the Q&A format to cover most of the key concepts for the crypto derivatives.

What Are Cryptocurrency Derivatives?

Mathematics and financial markets walk on similar paths when derivatives come into the picture. The concept of derivatives was introduced in Mathematics. It referred to a value or a variable which has been derived from another variable. Similarly in financial markets, the derivative is an instrument that is derived out of some market products. Its price is dependent on the value of the underlying asset from which it is derived. The underlying asset can range from stocks, currencies, commodities, indices, etc.

When the underlying asset is a cryptocurrency, the derivative is referred to as cryptocurrency derivatives. It is a financial contract between two or more parties based on the future price of the cryptocurrency.

Futures Contract

What is a futures contract?

It is a derivative contract between two parties to buy or sell the underlying at a pre-defined price and on a pre-defined date in the future. The underlying in this case is the cryptocurrency. One who buys the contract is said to be in a long position and one who sells it is said to be in a short position. The pre-defined price is the price of the futures contract and the pre-defined date is termed as the maturity date of the contract. Such contracts are standardized and are traded on exchanges. 

Let us understand the effect of changes in the price of the underlying cryptocurrency on the returns of the two parties. The buyer of the contract gains profit when the price of the underlying goes up because the contract allows him/her to buy the underlying at a cheaper price. In the same way, the seller is at the profit when the price of the underlying declines. 

So while trading futures, all you need to know is – go long when the price is predicted to increase and go short when the price is expected to fall. 

The futures contract in which the underlying is the cryptocurrency coin, then it is known as a cryptocurrency futures contract. For example, if the underlying is the Bitcoin, then it is called Bitcoin future contract and if it is XRP, then it is called a ripple futures contract.

Do I need to have cryptocurrency to trade cryptocurrency futures?

It is not important to have a cryptocurrency to trade cryptocurrency futures. The gains and losses of the futures contract are independent of the underlying. Let me explain it through example. Consider a Bitcoin futures contract. Assume there are two types of the futures contract on this coin:

Bitcoin settled: The gains or losses of this contract are in terms of Bitcoin and hence one needs Bitcoins to trade this contract.

USDC settled: The gains or losses of this contract are in terms of USDC and hence one needs USDC to trade this contract. 

Thus, the Bitcoin future contract can have its profit or loss in potentially any fiat or cryptocurrency. So there is no need to have a particular cryptocurrency to trade futures of that cryptocurrency.

Example of a cryptocurrency futures trade

Assume that the current price of Bitcoin is $4000. Trader A thinks that the price will go up to approximately $4500 in a month’s time. He buys the contract from trader B that will allow him to buy Bitcoin at $4100 one month hence. In this case, trader A goes long the Bitcoin futures at $4100. 

Profit/loss for Trader A = Current_BTCFutures_Price – $4100

Profit/loss for Trader B = $4100 – Current_BTCFutures_Price

As a matter of fact, the price of the Bitcoin futures typically tracks the current price of the Bitcoin. Also, at the time of maturity, the price of futures equals the price of Bitcoin. So if trader A holds the position till maturity and at that time the price of Bitcoin is $4300, then:

Profit/loss for Trader A = $4300-$4100=$200

Profit/loss for Trader B = $4100-$4300=-$200

Note that, we are considering the changes in the price of the futures contract and not the price of Bitcoin. 

Espay’s crypto futures derivatives contract development can help you in developing a competitive platform for futures trading.

Options

What are Options?

Options are the types of financial derivatives that give the holder the right but not the obligation to buy or sell a certain number of an underlying asset at a pre-defined price at a pre-defined time. They are extremely useful to hedge the risk and protect the portfolio. As a matter of fact, if they are traded with precision, one can earn outsized trading gains. 

Let us now understand what are crypto options.

Crypto Options are the options contract that has specific cryptocurrency as the underlying asset. Options enable traders to short the market (i.e. gain profit even though the price is declining). Thanks to options, crypto traders can now reap benefits from both bull and bear markets.

What are the types of Options?

Options are of two types namely call option and put option. These options consist of similar basic components – underlying asset, strike price, expiration date, and order size.

A call option is the right to buy an underlying asset (e.g. BTC or XRP) at a certain price (strike price) at a certain date (expiration date). A put option is the opposite of the call option, it is the right to sell the underlying instead.  

Options are also classified into two more types namely European and American options. European options can only be executed at the expiration date. While the American options can be exercised anytime or on prior.

Examples of Cryptocurrency Options trade

Call Option Example

Underlying Asset – BTC

Strike Price – US $8000

Expiration Date – July 30, 2020

Order Size – 1 BTC

The option mentioned above gives the trader the right to buy 1 BTC at the US $8000 on July 30, 2020, no matter what the price of BTC is at that point in time. As of today, the price of BTC is $4500. 

If the price of BTC does not cross the US $8000 at the expiration date, then it makes no sense to execute the option. It will be worthless (out of money – OTM) option. 

But, if the price of BTC crosses the strike price, then it makes sense to execute the option and buy 1 BTC at a price (the US $8000) which is lower than the then market price. This will help the trader gain profit (in the money – ITM option).

Read Full Article

IEO the current trendsetter and a brief comparison between 2018 and 2019 IEO

 

What is and IEO?

IEO stands for Initial Exchange Offering. It is like an ICO run through an exchange. In ICO, instead of shares, utility crypto tokens are sold at a discount in return of cryptocurrencies to fund the project. Here the tokens are sold via a crypto exchange. It is more reliable than an ICO as it is regulated and listed. Instead of an ICO where only two parties are involved, IEO involves three parties, i.e. Projects – Exchanges – Investors.

Why IEOsare currently trending?

• Trustworthy: As it is listed on crypto exchanges, the chance of fraud is very slim. The exchange’s reputation is on the line, so they study each project very carefully before listing.
• Open to all exchange users: It is open to all the investors on the exchange as there are no eligibility criteria.
• Security: The exchange makes sure there are no frauds like hacking and theft. It is more secure than ICO, as it is regulated.
• Regulation: The exchange conduct KYC for its users to make sure it is genuine. The issuing company does not need to conduct its own regulation, as it is done by exchanges.
• Token liquidity: After the IEO ends the investor can easily sell their tokens through exchanges to liquidate the money. It is one of the major factors which makes IEO much better than ICO.
• Not restricted: It is not restricted in many countries like ICO. China and many other countries have restricted cryptocurrency trading and ICOs. IEOs doesn’t face this problem.
• Reward programs: It includes distribution of airdrops and bounties for the investors. Exchanges are airdrop friendly, and it encourages more investors to invest in the project.
• The benefit to exchanges: The exchanges receive listing fees from the issuing company. They also benefit from new users.
• IEO development: There are many IEO development and marketing companies which help the users to develop and market tokens. They provide IEO development services for a new project from scratch as well as an existing project. An IEO development company, thus is extremely beneficial for investors looking for one point solution.
• IEO solutions: There are marketing companies which provide IEO solutions to its users. If at any point, you need to start an IEO project, you can simply approach an IEO solutions company.

These are all the factors which makes IEO so much better than ICO and still trending despite all the odds.

Famous IEO Exchanges and Platforms

Binance was the first exchange to launch a successful IEO platform called Binance Launchpad. After this, all the other exchanges started launching their own IEO platforms and provide Initial Exchange Offering Services. Some of the famous exchanges launching IEO platforms are as follows,

Exchange	Platform
Binance	Binance Launchpad
Bittrex	Bittrex International IEO
BitMax	BitMax Launchpad
Huobi	Huobi Prime
KuCoin	KuCoin Spotlight
OKEx	OKEx IEO

IEOs in 2018

ICOs started collapsing in 2017 and 2018due to scams and frauds. People started losing hope in the Cryptocurrency market. However, it was saved by IEOs, which provided a much safer and trustworthy market for investment. Binance was the first exchange started in 2017. Coineal exchange was started after Binance in April 2018. It focused on advanced development. It has launched ten successful start-ups like ZeroBank, IPWeb and GTEX. In 2018 Bread raised $6 million through IEO. IEO gave investors a nice platform to invest their money in. IEOs became quite profitable and famous in late 2018.

IEOs in 2019

The first quarter of 2019 was very profitable for IEOs. But later the market started collapsing. Bitmaxlaunchpad was started on 10 March 2019. It raised $1.5 million. Celar raised $7.5 million in 2019. Matic raised $4.5 million. Top raised $3.3 million. Newton raised $ 4.8 million. VeriBlock raised $7 million. Binance raised about $17.5 million followed by Huobi raising $8 million in 2019. IEOs raised a total of $1.474 billion in 2019. However, in late 2019, IEOs investors lost up to 98% of their money due to scam. Early 2019 gave a boost to IEOs buy by the end of the year many people lost their money. 

Successful IEOs launched in 2019:

• BITTORRENT – $7.2 million
• VERIBLOCK – $7 million
• OCEAN PROTOCOL – $6 million
• FETCH.AI – $6 million
• MATIC – $5 million

Read Full Article

what is 2fa and how does it work

 

Volatility is not the biggest threat to your cryptocurrency investment, but security of your funds is. Many of us still keep our funds on exchanges although, large part of fast learners have shifted to hardware wallets like Ledger Nano.

As it’s next to impossible to set up your own individual wallets, the most suitable option is as above, though it is definitely not the best practice.

The  biggest threat here compared to shutting down of these top cryptocurrencies exchange is getting hacked due to bad security systems and personal negligences. Cyber criminals have stolen more than $225 million worth of Etherum in 2017 only by the use of Website Phising according to Chainanlysis. This spoof website looks similar to the original website.

There’s 1 in 10 chance that you’ll end up being the victim of the above kind of theft while indulging in ICOs ,according to Bloomberg’s  stunning revelation.

So it’s very important for all of us to be very attentive and careful while we are investing in cryptocurrencies and, cybersecurity should be made our first priority.

Note: Sometimes 2-factor authentication is also known as dual factor authentication.

So how can we do that?

One of the most powerful ways in cybersecurity is 2FA(Two Factor Authentication) which we have all been negligent of, should be carried out.

Significance and uses of 2FA and ways to set it up

2FA enhances security level of your trading account. It scares us all to know how  easy it is for the cyber criminals to get to know your account’s User ID and password  with the wide use of standard security methods used all around the internet. By 2FA authentication, the cybercriminals are unable to log into your account, although they may have access to your account’s credentials.

How is it possible ? Let’s see in the below listed factors, usually used alongwith your credentials: 

It might be a combination of passwords, security questions and answers, pin code, smart card, a pass , physical hardware or an email code. It may also involve biometrics such as your finger prints, voice or heart beat etc.

Example of 2FA

Different types of companies implement 2FA in different ways. Explanation will be done  on how exactly to use 2FA in your crypto set up, to make your account on exchanges very secure, safe and less prone to hijaking.

Traditional example of 2FA is as follows

A combination of two keys are needed: one from the customer and one from the bank in which you have a security locker to keep all your valuables safe. This is called 2FA-Two Factor Authentication. Your debit card and ATM pin number are also examples of 2FA: As you cannot withdraw money just by the use of one factor.

Working of 2FA factor

2FA and your existing login procedure are related to each other, the only difference being, an additional piece of information in tandem. Your User ID and password are also to be entered. With the use of One time password (OTP) sent to your mobile number, or in the form of an app just like Google Authenticator or Authy, this additional information can be disclosed or stated to you which you need to enter with your credentials during the website’s login. 

It’s easier for the hacker to hack your email or to get a duplicate copy of your sim card by the use of social engineering and thus, for the authentication purpose, the use of your email or SMS (Phone number) is not recommended.

So when we’re using a mobile device to create this token, you’re in full security charge. In fact, if you haven’t already used 2FA, you should use it from now on. It’s simple and it makes protection for your account much more advanced.

You only gain access to the website after you have entered this extra piece of code.

Two-factor Authentication Advantages (2FA)

Below are a few common reasons why you should automatically trigger 2FA on your trading account! Let us take a look at this

Read Full Article