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Best Cryptocurrency Derivatives Trading Strategies

Author: nicolas tang

cryptocurrency derivatives

Although cryptocurrency derivatives trading has grown into a diverse ecosystem, it’s still in its infancy. Its trading approach is quite different from the traditional modes of trading cryptos. Nevertheless, it has great returns and it is also easy to learn. In addition, most cryptocurrency derivatives trading exchanges like Phemex have demo accounts where beginners can practice.

The two best cryptocurrency derivatives trading strategies used by traders are hedging and price speculation.


This is the most common derivatives trading strategy used by traders. It is mainly associated with futures and forward contracts.

Normally, a futures contract states that an asset shall be sold/bought at a given price in the future. The period of time is also specified. Therefore, traders and miners take advantage of this.

For miners, signing a futures contract helps them set the price for selling the crypto coins that they mine. This protects the miners from selling the crypto coins at a low price in the future in case the price of drops by that time. However, the contract also means that in case the price of the crypto coin rises, the miner shall not be able to sell them at the high prices but rather stick to the price stated in the contract. Therefore, it is a two-edged sword. While it protects from losing, it also caps the profit at a certain price.

Traders on the other hand hedge by trading Contract for Difference (CFDs). A trader could enter a pending long and a pending short at the same time. Therefore, if the price of the crypto asset rises, the long position is activated. Similarly, if the price drops, the short position is activated. However, one should hedging CFDs with caution since both positions could be activated leading to loss in one. Therefore, one should use stop loss and take profit levels.

Price speculation

In price speculation, the trader speculates the direction of the price movement of a crypto asset and places a contract respectively.

For instance, a trader could speculate that the price of Bitcoin is going to rise. Then he/she signs a futures contract to sell Bitcoin (BTC) at a set price higher than the current price. Therefore, when the contract expires, the seller sells his BTC at the set higher price thus making a profit. On the other hand, the buyer gets to buy the BTC at a lower price in case the current price of BTC is higher than the price stated in the contract. However, if the price of Bitcoin at the time of settling the contract is lower than the price set in the contract, the buyer buys the Bitcoin at a higher price than the market value.

Similarly, a buyer could speculate that the price of Ethereum shall drop and opts to sign a futures contract to buy Ethereum at a lower price than the current market price in the future. Once the time to settle the contract comes, the seller sells the Ether (ETH) at the agreed set price.

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