Dogechain Explains - Crypto Derivatives 📈 Once you delve into more advanced #DeFi instruments, you’ll inevitably come across Crypto Derivatives. This thread will explain what they are, and why they have gained so much popularity in the last few years. ⤴️ Crypto Derivatives are financial instruments that derive their value from an underlying crypto asset. They allow traders to get exposure to the price movement, without actually owning said asset. In contrast to spot markets which allow profits only when the price goes up, derivatives allow speculating on both positive and negative price action. 📉 📈 🤑 Three major types of crypto derivatives include: 🔹 Futures - are contracts between traders that obligate them to buy or sell a particular asset at a predetermined price, on a specified date in the future. E.g. A futures contract requires that you buy 100 DOGE at $0.8 in 1 week. - If the price of is higher at that time, you will be able to buy at a lower price and pocket the difference. 😏 - If the price is lower, you need to pay the difference. 🥶 🔹Options - are similar to futures, with the difference that they don’t obligate you to buy or sell the asset once the contract expires. Instead, you can pay the contract fee which comes at a fixed price. 🔹 Perpetuals - are unique to crypto and differ from futures in that they do not have an expiry date. Traders can keep positions as long as they keep paying their holding fee called the funding rate. Derivatives have: Pros: 🔸Higher leverage 🔸Managing risk and hedging 🔸Advanced trading strategies 🔸Higher liquidity 🔸Market efficiency and Cons: ♦️ High risk ♦️ Regulatory concerns ♦️ Counterparty risks As always, with any financial instrument, do your own research, practice before you risk real money, and never risk more than you can afford to lose. 💸 ♻️

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