Boasting astonishing numbers year after year, the cryptocurrency derivatives industry is a multi-billion-dollar market that has exploded recently. After the boom of Bitcoin and other virtual assets, many investors now spend their days betting on contractual side-bets on the future price of blockchain-based currencies.
Among the many options of derivatives available, options trading is becoming increasingly popular among retail crypto investors. In this short guide, you will find out five basic resources for crypto options trading. So, if you use Bitlevex, FTX or Binance Futures, then this guide is for you.
Cryptocurrency Options Trading – A Short Explanation
A derivative is a type of financial contract in which the contract’s value depends on the valuation of an underlying asset. In this sense, the price of a derivative contract may be pegged to one or multiple assets, or a specific benchmark outlined in the agreement.
Crypto derivatives are contracts wherein the underlying asset is a virtual blockchain-based currency, such as Bitcoin, Ethereum, etc. In this sense, it is possible to find cryptocurrency derivatives whose price is based on the value of an entire segment of the industry, such as the DeFi TVL (Total Value Locked).
A cryptocurrency option is a derivatives contract that grants the investor the right to buy or sell the underlying asset at a set price within a certain period. Essentially, options traders guarantee that they could buy or sell at a certain price on a predetermined date, regardless of what the virtual asset price is.
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There are two types of crypto options, which are call and put options. Call options give investors the right to buy the underlying asset to the contract. Meanwhile, put options give investors the right to sell the underlying asset to the contract.
In cryptocurrency options trading, the seller/writer has the obligation to deliver if the investors choose to sell or buy the underlying asset at the pre-set price.
Additionally, cryptocurrency options limit the exposure to dreadful risks (i.e., unlimited capital losses and debt), as investors lose only the paid premium in case the contract does not perform as expected.
Selected Tools for Cryptocurrency Options Trading – Best Solutions for Novice Investors
#1- Binance Options
Trading options on the world’s largest cryptocurrency platform is the best option for beginners. All novice investors need to start trading crypto options is downloading the Binance app and funding their futures wallets.
Currently, the platform offers two types of products focused on options – American-style options by Binance Futures and European-style vanilla options.
Deribit offers a solid Cryptocurrency derivatives platform for traders of all backgrounds and trading styles – including beginners. Considered the world’s premier platform for crypto options trading, they offer a diversified dashboard of features to boost trading performance.
The platform is cash-settled, which means that investors receive the US dollar equivalent instead of cryptocurrencies. Yet, it offers automatic settlement, so investors do not need to contact them to have their options contracts exercised.
Licensed by the United States Commodity Futures Trading Commission (CFTC), LedgerX is open 24/7, enabling investors to trade anytime they want. The platform settles the contracts physically, so investors receive actual cryptocurrency.
LedgerX does not automatically exercise users’ contracts. Hence, investors must contact them to get them exercised.
Ultimately, trading cryptocurrency options requires much more than simply putting money on contractual side-bets. It is impossible to trade profitably without precise market data, which is mandatory whether you are an advanced options trader or a beginner.
In this sense, OnchainFX is a market data provider that works similarly to CoinMarketCap. However, they offer detailed information and unique statistics, which investors can filter extensively for a customized experience.
Among statistics, OnchainFX permits users to see even the predicted market cap for cryptocurrencies in the year 2050.
Ranked in the list of the world’s best cryptocurrency screeners, TradingView offers real-time data of 25 crypto exchanges. One of their best resources is live trading charts that show the performance of both cryptocurrencies and stocks, a valuable resource for options traders.
TradingView has both free and premium functionalities. Hence, beginners have the option to test the platform for free before transitioning to premium for more advanced technical indicators.
Beginner’s Exposition to Risk When Trading Cryptocurrency Options – Final Thoughts
Undoubtedly, trading cryptocurrency options is a highly profitable endeavor – as it is also a high-risk activity. Proportionally, the higher the risk, the higher the reward(s). Nonetheless, beginners must take their time until getting exposed to riskier operations.
Still, unlike other forms of crypto derivatives contracts, options offer limited loss, as you only lose what you paid for a contract if the future does not meet the positive expectations. Plus, it offers a level of convenience not experienced in traditional currency markets, as all novice investors need to onboard is a valid email address, funds, and a bit of knowledge.