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Cryptocurrency Futures vs Options: How to Choose The Right Derivative

by MarketBillion
Cryptocurrency Futures vs Options How to Choose The Right Derivative

As the crypto derivatives have started to gain traction in the crypto market, cryptocurrency futures vs options has become a heated topic of discussion. Crypto futures and options are two different derivatives of cryptocurrency. They derive their value from the crypto assets and are traded on exchanges like Delta. Both the derivatives have an agreement between the buyer and seller in which the users agree to sell the assets at a predetermined amount and at a specific date and time. 

Although, as the name suggests, options provide a legal right to the users of making this agreement optional and sell/buy only if they wish to do so. Meanwhile, futures agreements are non deniable and the users have to complete their end of the agreement by selling/buying at the predetermined price. Both the derivatives have been able to generate great income for the investors but since they have some differences in the functionality, cryptocurrency futures vs options has come up for a debate. So let’s dive into this topic and learn what are the differences between the two and which one you should be choosing.

What are Crypto Futures?

What are Crypto Futures?
What are Crypto Futures?

With crypto futures, the investors can either buy or sell the underlying asset at the time of expiry. The only catch here is that you cannot back out of such an agreement in any case. You will have to purchase or sell at the predetermined price at predetermined time. This is one of the factors that come up in the cryptocurrency futures vs options debate.

Benefits of Crypto futures

·         Crypto futures are cost efficient as the buyers do not have to make any kind of pre-payment to the sellers. Unlike options contracts, buyers enter the contract without making any advance payments.

·         When a contract is set between the buyer and the seller, the price does not change as the date set for trade comes closer. Asset valuation is not impacted by the contract execution date, which is not the case with the crypto options contract. Options contract allow pre execution of the contract which negatively affects the asset valuation the closer the date of expiry comes.

·         Futures market holds a larger trade volume as compared to the options market. 

·         As compared to the options market, futures contracts are more liquid and accessible to the investors.

·         In some cases, futures contracts also provide tax benefits to the investors. Equity contracts and options contracts do not hold the same benefits.

What are Crypto Options?

What are Crypto Options?
What are Crypto Options?

Crypto options are usually chosen by non institutional investors or individuals. Under an options contract, there is a specific time period in which the buyer has the right to purchase the asset at a predetermined price but not an obligation.

But once the contract expires, the right to purchase/sell the asset goes away too. It can be said that individual investors consider this contract to be a safer choice when the cryptocurrency futures vs options debate comes up. Crypto options is a derivative that provides a lucrative offer to both the sellers as well as the buyers during bear and bull runs. 

Although, one catch with crypto options contracts is that the buyers have to provide a premium to the sellers for entering the agreement. This means there is a prerequisite payment involved which is not refundable

Benefits of Crypto Options

·         As compared to the futures contracts, options contracts allow the users to suffer less losses when the market starts moving negatively. For example, as the asset starts showing negative movement, the buyer has an option to close the agreement at the prefixed price.

·         While options contracts provide a right to the users over purchasing the underlying asset at a predetermined price, there is no such obligation for the buyer to complete the purchase at the given price.

·         There is no set rule to complete the contract on an exchange only. The users can also execute an options contract off the crypto exchange through personal trading mediums. There is no such choice possible with futures contracts.

Conclusion: Which Should You Choose?

In conclusion, if you want a cost effective method to earn from crypto assets, you can go with crypto futures and not pay any premium to be in the contract. However, options provide a less risky way of earning profit with closing the trade before the determined time. The factors to consider when choosing between futures and options are the risk tolerance, liquidity options, and the assets that you wish to trade. 

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