A derivative (derivative) is a contract under which the parties acquire the right or assume the obligation to take certain actions with respect to an underlying asset: to buy or sell a currency, a commodity, securities, or cryptocurrency. The value of the contract itself does not exist autonomously but is formed on the basis of the price of the underlying asset, which is why such instruments are called derivatives.
The key feature of derivatives is that the total volume of obligations under them is not tied to the actual amount of the underlying asset circulating on the market. Issuers and participants in deals are not required to own the asset itself. As a rule, the goal of buying a derivative is not the physical receipt of coins or goods, but protection against price or currency risk over time, or obtaining a speculative gain from price movements.
Types of crypto derivatives
- Futures — an obligation to buy or sell an asset at a pre-agreed price in the future;
- Options — the right (but not the obligation) to make a deal at a fixed price;
- Perpetual contracts (perpetual swaps) — an instrument popular in the crypto market with no expiration date;
- Swap contracts — an exchange of cash flows between the parties.
The financial result for each party to a deal can be either positive or negative. Derivatives make it possible to work with leverage, which increases not only the potential return but also the risk of losses, so they require an understanding of the instrument's mechanics.
