It involves speculating on the price movement of cryptocurrencies without owning the underlying instrument. It allows traders to benefit from both rising and falling prices in the cryptocurrency market.
A trader selects a financial instrument: futures, options, perpetual swaps. Then, they analyze the market and identify potential entry and exit points. Based on market analysis, traders determine whether to go long (buy) or short (sell) on the instrument. Once the trade is executed, users continuously manage risk exposure.
Depending on the financial contract and platform, profits and losses are settled according to the contract terms. Settlement may occur in the form of cash or physical delivery of the underlying asset.
It’s important to note that crypto derivatives operations involve a higher level of risk compared to spot trading. Users should have a good understanding of the instrument they are using, employ effective risk management strategies, stay informed about market trends and regulatory developments.