Crypto derivatives

Crypto derivatives are financial contracts whose value is tied to an underlying cryptocurrency. Traders use them to gain exposure to price movements without owning the actual asset. The main types are futures, perpetual contracts, and options. Futures set a price today for a trade at a future date. Perpetual contracts never expire and use a funding mechanism to keep their price close to the spot market. Options give the right but not the obligation to buy or sell at a set strike price. Calls give the right to buy. Puts give the right to sell. Traders use derivatives to speculate, to hedge, and to apply leverage. Speculation aims to profit from correct predictions about price direction. Hedging reduces risk by taking positions that offset existing holdings. Leverage lets a trader control a larger position with smaller capital. Leverage can increase gains. Leverage can also amplify losses. Perpetual funding payments flow between long and short holders. These payments keep contract prices aligned with the underlying market. Fees and premiums are part of options and futures trading. Exchanges and brokers may charge execution and contract fees. Over-the-counter trades can carry counterparty risk. Liquidity improves market entry and exit and narrows bid-ask spreads. Better liquidity attracts more participants and helps price discovery. Derivatives help discover fair market prices by aggregating expectations. They also let traders manage portfolio risk and diversify exposure. Yet derivatives bring clear dangers. Crypto markets are volatile and move fast. Leverage makes losses larger and can wipe out margin quickly. Regulatory rules can vary by jurisdiction and can change suddenly. OTC deals can fail when one side defaults. Technical problems and platform outages can prevent position management. Best practices start with education and careful research. Use position sizing to limit exposure on any single trade. Set stop-loss orders to cut losses automatically. Monitor funding rates and margin requirements continuously. Diversify across instruments and timeframes to avoid concentrated risk. Keep only risk capital you can afford to lose. Read the rules and protections offered by your trading venue. Treat derivatives as powerful tools and not as guaranteed profit engines. Think of the market as a sea that remembers every trade, and learn to navigate its currents with discipline and respect.