The Crucial Guide to Crypto Derivatives for Aspiring Traders

The New York Times published an article in 1996 about the entrance of the Internet to the stock market. The article explored how the Internet could replace the functions of a broker, whose stock-in-trade includes information, guidance, and the execution of transactions, all of which could be found online for less money and with less difficulty. This seminal article can be viewed as the spark that ignited the argument over whether or not the world required a high-priced Wall Street brokerage to find buyers for their shares when investors could potentially do so themselves via the Internet.

Indeed, what was once merely a hypothesis has become a fact. Exchanges are only a mouse click away, and information is abundantly available on the Internet within seconds. The Internet's usefulness has placed tremendous power in the hands of individuals, offering aspiring traders the opportunity to participate in the game and generate profit, but also exposing them to market hazards.

Due to the internet and Web3, the image of titans of industry ringing the opening bell on bustling trading floors no longer applies; now, people trade from the comfort of their own bedrooms, and the sound of opening bells has been replaced by the incessant ping of Twitter notifications alerting traders to the newest IEOs.

Nonetheless, another shift in trading is occurring...

And that is the accelerating trend toward gaining access to more attractive financial opportunities via:

For those unfamiliar, a derivative is a financial instrument whose value is dependent on the values of other more fundamental underlying factors, and it includes assets such as futures, forward contracts, swaps, and options, among others. Futures and options, as well as perpetual contracts and swaps, are examples of regularly traded crypto derivatives.

Derivatives play a crucial role in shifting economic risks and making spot markets more liquid; traditionally, crypto spot markets have been extremely illiquid, even after adjusting for market capitalization relative to traditional markets. Not until the launch of cryptocurrency futures markets did spot markets have a discernible increase in debt and liquidity, which began to take effect between 2017 and 2019.

In addition to their use as a hedging instrument - which, since 2021, has been transformative for venture investors seeking to lock in prices for unvested/locked token holdings - derivatives can also be used to speculate - which is arguably their primary use case - and to gain exposure to markets without having to own the underlying asset whose value you're trading; a point of great convenience, given the volatile nature of some crypto assets!

Similarly, futures trading in cryptocurrencies is beginning to gain popularity due to the continued and expanding deployment of blockchain technology. According to a report from Tokeninsight's Cryptocurrency Derivatives Exchange, the trading volume on the cryptocurrency derivatives market increased by 159.4% between Q3 2019 and Q2 2020.

This reached its pinnacle in May 2021, just prior to the Chinese mining moratorium that halted the current bear market. Subsequently, a comeback took it closer to its May 2021 peak, although it appears to have now reached a plateau.

What can we do to be ahead of the curve, given that many analysts and academics foresee a rapid expansion of the crypto derivatives market in the next years? How can an aspirant trader become a confident trader in the cutting-edge market for crypto derivatives? We have the perfect answer for you.

As crucial as knowing what instruments to trade and how they function is knowing where to trade them optimally; with crypto derivatives, the underlying asset might be any cryptocurrency token, a basket of them, or even their very volatility. For derivatives such as futures, forwards, and swaps, crypto exchanges employ the stablecoin USDT as a stated price versus cryptocurrencies (as well as for spot trading).

As a result of the significant opportunity costs associated with converting their crypto assets to stablecoins, those who possess cryptocurrencies such as ETH and BTC, or who are concerned about the peg of assets such as USDT, will likely avoid such contracts, unless their perceived risks can be dispersed.

Globe Exchange provides a solution; through their newly launched unified margin feature, traders will be able to use virtually any asset as collateral for trading linear perpetuals on its derivative exchange, thereby eliminating the issue of orderbook fragmentation that plagues older, legacy exchanges that split orderbooks into USDT- or BTC-margined futures. No longer will traders be obliged to exchange their assets for stablecoins in order to trade linear perpetuals, allowing them to interpolate their risk profiles between BTC longs and stablecoin holdings.

In addition, with Unified Margin, traders will be able to use coins like BTC to trade futures contracts without converting them into stablecoins, allowing them to preserve exposure to BTC while employing short-term trading methods.

Simply put, Unified Margin will enable traders to participate in futures markets by allowing any currency to be used as collateral.

When you have conviction in a trade and an entry price point, you must have faith that the exchange you're trading on is liquid enough to fill your order. When limit orders are placed, one of the most common occurrences - and a major hindrance to trading strategies - is that the order does not get filled and the trade does not go through, or taker orders suffer massive slippage, or the exchange latency spikes, making it unclear where the trade is likely to be executed.

Consequently, if the trade ended up being highly successful, the trader would have missed out on this chance because the exchange was unable to execute their trade.

This is a liquidity issue on an exchange; globe is already one of the world's most liquid futures exchanges. Despite opening only a few months ago, it has already surpassed Kraken, Bitmex, Bitfinex, and Gate in terms of liquidity, hence significantly reducing traders' risk of not having their orders executed.

Therefore, it is crucial to investigate the performance and liquidity of the trading platform you will employ in order to execute the deals you desire. To use Globe as an example again, its exchange architecture is meant to provide their users with a superior, faster, safer, and more liquid trading experience.

Globe's cloud API replies robustly in a few milliseconds, whereas FTX, for example, typically responds 80 times more slowly. In fact, even traditional financial matching engines have been surpassed by Globe's matching engines (5us vs. 50us for LSE whitelabels, etc.)

Security is one of, if not the most important factor to consider while picking a trading platform. Unfortunately, crypto is notorious for security breaches and cyberattacks. Without a robust, tried-and-true security architecture, being a wealthy trader and having a successful strategy is irrelevant; being highly profitable is irrelevant if your funds are stolen. Globe's wallets have never been hacked or compromised, and the company has invested in an industry-leading security architecture, including cold storage solutions and rigorous insurance mechanisms, created by some of the most accomplished specialists in the business.

Important details include liquidity; in margin trading, you use leverage to expand your position size with the goal of maximizing earnings. With increased position size comes the consideration of liquidity; through the platform's dependability and their collaboration with teams of institutional market makers, Globe has enabled the instruments on their exchange to have sufficient depth of market to ensure that orders are filled regardless of the size of traders' positions.

Final Reflections

With Globe edge, traders will be able to improve their trading skills in one or several steps, accelerating the transition from aspiring to professional trader.