What is a Bitcoin Derivative?
A bitcoin derivative is simply a financial contract that has a value which is derived from the underlying asset, in this case bitcoin. It is a type of product that was created so that traders and investors could hedge their risk or speculate on the price of the digital currency without having to hold bitcoin itself. In other words, derivatives allow you to trade on the future price of an asset without having to own it.
Derivatives can be traded either on an exchange or over-the-counter (OTC). The former is more akin to an auction market where buyers and sellers meet and compete. An OTC market however, matches buyers and sellers directly by searching for those who want to buy and sell at particular prices.
There are several different types of derivative products, some of which are more complex than others. There are futures, forwards, options and swaps among others but we will cover these in greater detail later in this article.
Now that we have covered what derivatives are let’s look at how they relate to bitcoin specifically.
As the popularity of bitcoin derivatives continues to grow, so does the list of trading platforms offering these products.
Bitcoin derivatives are an easy way to short or hedge a position in the digital currency. Derivatives have existed in some form since the early ages of commerce.
For example, forward contracts can be used when one party is looking to buy or sell an asset at a predetermined price and time. The contract may also include an agreed upon quality specification of said asset. In this case both parties agree to terms and sign a contract, but no money is exchanged until the agreed upon date. This allows one party to lock in a price today for something they plan on buying in the future (or selling if they already own it). Forward contracts are often used for commodities such as oil or agricultural products. They can also be used for financial instruments like currencies and bonds, which is how we will be using them here.
Derivatives can be bought and sold over-the-counter (OTC) or on an exchange. OTC derivatives are negotiated directly between two parties with no third party intermediary involved, which means there is no guarantee that either party will fulfill their end of the deal. These contracts are typically used by large institutions such as banks or hedge funds who have
The concept of derivatives is at the core of the cryptocurrency ecosystem. One of the most popular derivates of bitcoin is futures – a derivative instrument that allows its holder to buy or sell an asset at a certain price in the future.
In this article we will talk about futures and other derivatives, ranging from simple over-the-counter options to complex structured products. We will also discuss how derivatives can be used by both financial institutions and retail investors.
Derivatives are financial instruments whose price is derived from an underlying asset (e.g. stocks, bonds, commodities) or an index (e.g. VIX volatility index). Derivatives can be traded on exchanges or privately through OTC contracts between two parties.
Bitcoin derivatives are not new, but their popularity has grown significantly during the last few months, especially since the launch of bitcoin futures on major US exchanges in December 2017 (Cboe and CME).
There are several types of bitcoin derivatives that allow traders to take long or short positions, as well as speculate on price movements without actually owning bitcoins.
In this article, we will cover the different types of cryptocurrency derivatives, how they work and what the different trading strategies are.
Cryptocurrency derivatives are a relatively new asset class that has grown to be a very important part of the crypto ecosystem.
Bitcoin derivatives are contracts between two parties. These contracts can be bought and sold on digital exchanges like BitMEX, Deribit and OKEx. The value of these contracts is calculated using the current value of bitcoin as well as other factors such as leverage, interest rates and time to expiry.
The most common type of derivative is called a futures contract. This is when one party agrees to buy some amount of bitcoin at a certain price at some point in the future. This contract can then be traded by anyone who wants to take on either side of the trade.
A less common type of derivative is called an options contract. This is when one party gives another party the right – but not obligation – to buy or sell some amount of bitcoin at a certain price by some point in the future. This contract can then be traded by anyone who wants to take on either side of the trade.
The rise of cryptocurrency has been nothing short of spectacular. However, for many people, the most interesting aspect of digital currency is not the coins themselves but rather the underlying blockchain technology. This data structure has given rise to a wide variety of financial instruments that can be traded on exchanges or used within smart contracts.
A number of crypto derivatives are available today, including:
– Bitcoin Futures
– Bitcoin Options
– Digital Currency Indices
– Leveraged Tokens
To increase market liquidity and facilitate price discovery, we are launching XBT futures. In addition to providing an innovative derivatives marketplace and technical solution for managing the complex and diverse risks associated with digital currencies, our new contract will provide investors with transparency, price discovery and risk transfer capabilities.
The introduction of XBT futures will allow the market to discover a price for bitcoin at a regulated, protected marketplace. The contract is cash settled on the CME CF Bitcoin Reference Rate (BRR), which aggregates bitcoin trading activity across major bitcoin spot exchanges between 3:00 p.m. and 4:00 p.m. London time. The BRR is designed around the IOSCO Principles for Financial Benchmarks.
We are excited to work with the entire digital asset community to make the new contract a success and promote the professionalization of this growing market segment