Understanding the Derivative Resurgence
As the cryptos continue to plunge the derivatives trading has shown resurgence recently. Traders are now exchanging bitcoin derivatives that appear to be rewarding despite being risky.
Already, exchanges like Bitmex and Deribit have cashed in on the new trend leaving traders dry. However, the venture is meant for experienced traders only since exchange in synthetic assets has always been risky.
Bitcoin traders now have an option of choosing from three synthetic options. We have futures, margins, and derivative. However, not all platforms provide the three, notably, Bitmex offers all the options.
Futures are known to have up to 100x in leverage and represent a contract for selling and purchasing assets. On the other hand, derivatives depend on other assets before their value is determined. They can be swapped at higher profits. For margins, funds are sourced from a broker and repaid with profits. However, a typical equity mark of 30% is maintained just in case we have losses.
Cases of traders being stopped and positions dissolved are not new. On Bitmex, users are at risk of unplanned happenings that destroy well-planned trading exposing users to risks.
Such events include DDoS attacks, downtime, log-in errors, and sudden price hikes. Such events leave traders with no room for complaining.
These events have led user exodus from Bitmex. The traders are now accommodated by Deribit. The latter has vowed quick trading with 50x leverage.
However, Bitmex is still leading in the derivatives market after gaining a capacity of 355k of bitcoin within one day. Deribit might pick up due to fewer charges.
It should be noted that platforms do not guarantee profits in derivatives trading. It is a risky affair that can only be handled by a limited number of traders.