What are Derivatives?

Derivatives are financial contracts whose value is based on an underlying asset, such as cryptocurrencies, stocks, commodities, or indices. In crypto markets, derivatives allow traders to speculate on price movements without holding the actual asset.

Common Types

Futures Contracts

• Agreement to buy/sell at future date
• Standardized contracts
• Fixed expiration dates
• Used for hedging/speculation

Perpetual Swaps

• No expiration date
• Popular in crypto markets
• Funding rate mechanism
• Tracks underlying price

Options

• Right but not obligation to buy/sell
• Calls (buy) and Puts (sell)
• Multiple strike prices
• Time decay factor

Key Concepts

Leverage

• Enhanced exposure
• Increased risk/reward
• Margin requirements
• Liquidation risk

Settlement Types

• Physical delivery
• Cash settlement
• Mark-to-market

Related Terms

• Futures
• Options
• Perpetual Swaps
• Leverage