These financial instruments are very popular and widely used. These instruments are used to hedge risk. A derivatives contract is a contract that allows an investor to agree to purchase an asset at a certain price. This allows them to hedge against fluctuations in the asset’s value.
However, the derivatives market is also very popular as a topic of speculation. Instead of owning an asset, traders speculate on its future value. The financial crisis was driven by the explosion of derivatives, especially those that are based on mortgage lending.
However, derivatives still have their uses and are becoming more common in crypto.
Crypto derivatives can be used by speculators as a way to make profits, just like derivatives that are based on currency. The most significant long-term benefit of crypto derivatives is their risk hedging.
This was evident in the 2017 mass launch of Bitcoin Futures. Many within the crypto community believe that Bitcoin must offer investors an opportunity to mitigate risk in order to be mass adopted as a store-of-value.
While wild price fluctuations offer speculators the opportunity to make some money, they can also be risky for more cautious investors. Bitcoin’s launch on the Chicago Board Options Exchange of Bitcoin futures was a significant milestone. It offered institutional investors an opportunity to hedge against these fluctuations.
Most major crypto exchanges offer crypto derivatives. There is also a trend to expand derivatives offerings on traditional global exchanges like the Nasdaq.