Understanding Derivatives
Derivatives are financial instruments that are widely used and popular in various markets.
They serve multiple purposes, including risk hedging.
Investors often utilize derivatives contracts to agree on buying an asset at a predetermined price, allowing them to hedge against potential fluctuations in its value.
Derivatives Markets
However, derivatives markets are also prominent for speculative purposes. Instead of owning the underlying asset, traders speculate on its future value.
The proliferation of derivatives, particularly those tied to mortgage lending, played a significant role in the financial crisis.
Despite their controversial reputation, derivatives still hold value and are increasingly entering the crypto market.
Crypto Derivatives
In the realm of cryptocurrencies, derivatives can be employed by speculators to generate profits, similar to derivatives based on fiat currencies.
However, hedging risks is a crucial long-term advantage of incorporating crypto derivatives.
Crypto derivatives are now widely available on major cryptocurrency exchanges, and there are also efforts to expand derivatives offerings from traditional global exchanges, including Nasdaq.