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How to find the right Crypto Derivatives Platform for Hedging Strategies?

Author: silvia.zhang Date: 2023-04-07 03:00:45

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The number of exchanges for crypto derivatives is growing rapidly alongside the market for cryptocurrency. Finding a trustworthy platform for crypto derivatives can be challenging because there are so many options accessible. Whether you’re a new or expert trader, we prepare you this guide to discover the features of best options trading platforms.

What is crypto derivatives trading? How does a derivatives contract work?

Contract trading is a legal agreement between a trader and an exchange for purchasing or selling contracts of an asset such as Bitcoin (BTC). Contract trading enables traders to gain access to direct exchange capital at a higher margin than they initially invested in order to maximize their potential of profit. Phemex ranks among the world’s twenty largest derivative trading exchanges.

A contract with two or more parties that has a value dependent on an underlying asset is known as a derivative contract. Stocks, money, and commodities are typical underlying financial products. The underlying asset’s price variations determine the derivative’s pricing.

The main distinction between spot trading and derivative trading is that the derivative traders are not holding the underlying asset itself, but rather contracts connected to the spot price. Derivative trading is when traders make assumptions on the future price movements of an asset by either purchasing or selling derivatives in hopes of making greater profits than that if they bought the underlying asset outright.

To reduce risk associated with an existing position, traders can also employ hedging strategies through derivatives. For example, traders can go short and make money off of declining asset values and thereby hedge themselves against any current long positions.

Key Features of Trustworthy Crypto Platforms for Contract Trading

  • Security

A custodial centralized exchange’s top priorities are security and safety. After all, malicious attacks that result in significant financial losses have been a constant hazard in the crypto industry.

Phemex is a cryptocurrency trading platform that has never been hacked. To lessen asset exposure to connected networks, Phemex designed a trustworthy Hierarchical Deterministic Cold Wallet solution. The majority of user funds are maintained in cold storage, and before being transferred, funds in hot wallets must pass stringent manual risk controls. Phemex’s trading engines were developed with a focus on high velocity and 100% availability for increased reliability. Users are guaranteed access to trading even during system maintenance periods.

  • Transparency

Every reliable CEX should prioritize asset security, but the platform’s transparency must also be carefully considered. In response to the collapse of FTX, proof-of-reserve has become extremely popular among centralized exchanges. For PoR to be truly convincing, nothing should be hidden from consumers. Because Phemex’s proof-of-reserve tool does not rely on a third-party auditor (a single point of failure), and because additional proof-of-solvency is also provided, the exchange’s overall credibility is increased.

  • User Guide and Customer Services

 

User-friendliness can considerably improve an exchange’s reputation. This way, beginners can rapidly pick up the basic knowledge and be ready to start their crypto journey. To help users get the information they need, whether it’s about cryptocurrencies or platform functions, Phemex provides a comprehensive Help Center and more than 1000 instructive articles across its Academy and Blog. Phemex quickly communicates all important trading updates, fostering a stronger relationship and user confidence.

Main Factors to Consider When Choosing a Crypto Platform for Contract Trading

  • Verification Mechanism

Be sure to carefully examine the exchange’s verification and security standards before choosing where to trade contracts. Most of the top crypto derivatives platforms use KYC and sometimes other additional verification systems to help verify their users’ identities.

  • Trading Options

Examine each platform’s choices thoroughly, especially if you want to be involved with newer projects and altcoins. You should always use a cryptocurrency derivatives platform that offers a wide range of contract pairs with high liquidity.

  • Fees

Of course, trading costs are another important factor. Tiered exchange fee structures are used by several of the top trading platforms for derivatives trading. You should examine the fees of several platforms if you intend to make multiple transactions every day.

In addition, other important factors to consider are the platform’s trading execution speed, magnitude of potential leverage, and order book liquidity. Taking Phemex as an example, it’s one of the best places to buy crypto because it offers up to 100x leverage on contract trading, and is also the first CEX to implement the RAFT algorithm in cross engine and trading engine with 24×7 uptime.

Conclusion

Contract trading is a type of cryptocurrency derivatives trading that enables traders to use leverage and boost their potential profits. Users need to be familiar with spot trading and technical analysis to truly excel at contract trading.

Please note that crypto derivatives trading is generally for more experienced users, and traders should only risk money that they can afford to lose.


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