Derivatives are financial instruments (contracts) whose values are derived from an underlying asset. When someone trades derivatives, they are buying/selling contracts that represent the actual assets. They are used primarily for hedging purposes, specifically when traders want to protect themselves from price fluctuations.
Why would someone trade derivatives over trading the actual asset? Here are the advantages of trading derivatives over spot:
You can trade whether bitcoin is going up (long) or going down (short) – In essence you can make money in both a bear and a bull market
You can use leverage – You can borrow more than you hold in your account which magnifies your potential profit (and your potential losses)
FTX offers up to 101 times leverage – In essence you can borrow 101 times your account collateral / security. For example, you could hold $100 in your account and put it down as collateral to borrow up to $10, 100
You can hedge against volatility in the market – If the price goes down the value of your derivatives maintain their value in USD. If price goes against your position, you have an opposing hedge against that position cushioning you against adverse losses
Why would you want to trade on FTX?
Wide variety of derivatives – BTC futures, EOS futures, oil futures, USDT futures etc. FTX has the most extensive futures listings in the crypto space
Ability to trade oil futures – FTX allows you to trade crude oil futures that expire to the spot price of WTI oil, which is unique to FTX in the crypto space
Ability to open sub-accounts – This means you can split your trading to different accounts allowing you to take multiple positions in different directions under the same instrument, which is generally not possible on platforms like BitMEX
Ability to trade BTC volatility – You can trade how different the bitcoin price will be at the close of a 24-hr period from the start of the 24-hr period using BTC MOVE contracts. Bitcoin Volatility Token (BVOL) tracks the implied volatility of crypto markets.
FTX continues an evolution of crypto products which means the exchange is always innovating new products in order to realize the evolving needs of the crypto markets. A classic example of this is the MOVE contracts and the bitcoin volatility token.
On exchanges, liquidity, in essence, is more valuable than volume and FTX seem to have the much needed liquidity making it one of the best crypto derivatives trading platform.
FTX is well know for its derivatives products which are quite popular among traders as they allow them to manage risks, trader at a low cost, and with less capital, and easily sell short.
The upcoming class will feature the Kenya and African FTX team members, who are also experienced traders, to take you through the basic layout of the platform and how to get started and onboarded to begin trading.