RIO DE JANEIRO, BRAZIL – The universe of finance is huge and dense, with a variety of products, services, and instruments of all kinds. There’s standard buying and selling, of course, but trading specifically gets deeper when going down the rabbit hole that is derivatives.
Derivatives are a type of financial instrument or contract that is based on the price of an underlying asset. Derivatives are also broken down further as futures, options and CFDs. Each type of popular derivative contract offers unique benefits and risks, with CFDs acting as the ultimate in flexibility, which we’ll explain within this guide.
WHAT ARE DERIVATIVES?
Traders in spot markets are stuck only buying and selling assets. And because knowing when the exact top or bottom is in, spot traders are often left holding the bag while prices of assets continue to drop. They tend to only make profits in bull markets, and bear markets either result in losses or a pause in any returns.
That’s where derivatives come into play. With derivatives, no assets are actually traded, and instead, contracts are settled in either cash, crypto, or another base account currency. Traders can also profit from both directions of the market with long and short positions, and aren’t forced to own or sell anything at all.
Avoiding exposure to assets like crypto and instead of trading contracts like what’s mentioned below is a very attractive alternative for those not interested in the custody of their assets.
THE MOST COMMON TYPES OF DERIVATIVES ARE:
Futures
Futures are a type of derivatives contract that allows traders to speculate on the future price of an asset. Buyers and sellers of futures contracts are required to settle the contract at or within a future date called an expiry. If the future prediction is correct, the trader settles the contract in profit. If the future prediction is incorrect, the difference determines the total loss. Traders are willing to risk loss in exchange for potential return.
Options
Options are similar to futures, however, traders aren’t required – but instead, have the option – to settle the contract at or before the contract expiry. Because settling is optional, options carry less risk. However, options include an expensive premium upfront in exchange for the reduced risk and potential reward.
CFDs
Crypto derivatives also include CFDs – CFDs meaning “contracts for difference” – which allow users the ultimate flexibility in trading markets. They allow traders to go long and short on markets so they can profit from both directions like options or futures, but aren’t tied to any time period or expiry. At any time traders can enter or exit CFDs providing the most flexibility overall. CFDs also allow for more exotic trading pairs, which makes them appealing for brokers and users alike.
THE CFDs OFFERED ON PRIMEXBT EXPLAINED
PrimeXBT is an award-winning CFD trading platform, ditching the options and futures contract to, instead, provide unrivaled versatility to the global trading community at large. Because PrimeXBT relies on CFDs to power its trading instruments lineup, there’s much more variety to choose from.
As a multi-asset margin trading platform, base account currencies range from BTC, ETH, USDC, and USDT, however, using them to open margin accounts lets traders access CFDs on forex, crypto, commodities, stock indices, and more.
Across crypto, there’s Bitcoin, Ethereum, Litecoin, Ripple, and EOS. Among the stock indices, the most popular national indices are included, such as the Dow Jones, S&P 500, DAX, FTSE and more. Major forex currencies and exotic pairs are also included, along with gold and silver. Commodities like oil and natural gas also join the range of instruments.
WHY YOU SHOULD TRADE CFDs WITH PRIMEXBT
The power of CFDs combined with PrImeXBT’s advanced trading tools like long and short positions, stop-loss orders, built-in charting software and much more, allow even newcomers to build successful trading strategies and see them through to execution.
There’s also a plethora of risk prevention tools, a mobile app for on-the-go position management, and some of the most robust security features in the industry. With competitive fees, free registration, and innovative experiences like the Covesting copy trading module, PrimeXBT is a one-stop-shop for CFD trading.