What Is Derivative?
When you log into your Binance account there in the menu bar at the top of the page you see that we have derivatives. if you don’t know what derivative is derivatives are financial assets that their value is derived from another asset or group of assets may be. so we have an underlying asset in this case which is bitcoin or other coins and for example based on the bitcoin we can have some kinds of contracts between buyers and sellers that the value of these contracts are derived from the bitcoin price.
What Is Future Market?
What is the meaning of spot trading in spot rating you trade for immediate delivery when you are buying bitcoin and on the other hand someone is selling bitcoin the exchange between you and the seller is done instantly and you’ll have your bitcoin and the seller will have Tether for example immediately when the transaction is done and the coins themselves are exchanged between you.
But in futures market, you buy or sell a future contract and contract between buyer and seller for delivery of the coins in a future date so they have expiry date besides these traditional form of future contracts we have also perpetual futures contracts that don’t have an expiry date and you can stay in your possession as long as you want perpetual future contracts are them or common one in the cryptocurrency market.
Spot Market vs. Future Market
Now you may ask what’s the point of trading in futures market while you can trade in the spot market in spot market you can make profit in one way and that is, for example, you buy bitcoin the bitcoin price increases and you sell your Bitcoin at a higher price for profit but in futures market, you can make profit in both ways whether the bitcoin prices rise or fall so when you expect that the bitcoin price is going to rise you go long, in other words, you buy a future contract and when you expect that the bitcoin price is going to fall you go short or in other words, you sell a future contract so even if you don’t have any Bitcoin you can sell it and buy it back at lower prices you can’t do this in Spot market and we can also use futures contracts for hedging and risk management and also on Binance we can leverage our positions up to 125 times larger than our account balance.