How derivatives increase interest in cryptocurrency.
Derivatives or derivatives play an important role in any financial market. They appear at a certain stage in the evolution of the market, and as they develop, they themselves begin to contribute to the expansion of its infrastructure and increase investor interest in the underlying asset.
Value of cryptocurrency derivatives
According to Dmitry Volkov, technical director of the CEX.IO international crypto exchange, the digital asset market is developing according to the same laws as traditional markets, only much faster. When a certain level of trading volume and liquidity is reached, derivatives appear on it that lower the threshold for entry and allow you to earn on any movement of the exchange rate or its absence. Increased availability contributes to the growth of turnover in the base market and its popularity.
In the cryptocurrency market, the first derivative was contracts for price difference (CFD), which, due to their close connection with the spot market, motivate traders to perform hedging transactions there. Next came crypto futures, offering more complex and efficient arbitration and new ways of hedging with less capital requirements. Further, the crypto market saw options, both for the digital currency itself and for its derivatives, which once again increased liquidity and opened up even more opportunities for participants, for example, to earn, even if the market does not move at all.
Since January 2020, contracts for price differences from CEX.IO Broker have become available to Russian traders, allowing them to simultaneously trade in supply and non-supply markets using one infrastructure.
Institutional organizations use collapses to enter the market, and thereby stimulate higher quotes. This is what we saw in November-February, when after the BTC fell to $7,000, buyers intensified and the exchange rate rose rapidly above $10,000.
What attracts investors?
Cryptoderivities trading is gaining popularity, as it allows you to effectively insure exchange rate risks (hedge) and shorts, and this makes it possible to diversify trade strategies. At the same time, traders can use the opportunities of the credit shoulder to make large profits even with insignificant equity, which cannot be achieved in the spot market.
“Due to this and other mechanics, derivatives make it easier for investors to interact with cryptocurrencies, give great opportunities for earnings, while improving their attitude to the underlying asset. It is becoming more understandable, accessible and universal. The growing interest of investors in derivatives leads to the development of infrastructure – we see that now there are more and more sites for margin trade, new opportunities for working simultaneously in spot and derivative markets, “says Dmitry Volkov.