In Altsignals, we reckon that trading always turns out to be a different experience for each user depending on the instrument they use to carry out their operations. Some traditional investors constantly analyze the market but focus most of their attention on buying and selling cryptocurrencies through the spot section, where they buy crypto assets at one price and then sell them at a higher price. Other traders lean toward perpetual contracts, which represent the value of the underlying cryptocurrency. Today we will talk about bitcoin options trading and how it can be useful for traders.
Disclaimer: this is not investment advice. We are not financial advisors and we are not responsible for your decisions. Always ask for information to your private financial advisor. This is for educational purposes only.
What is bitcoin options trading?
Bitcoin options are derivative financial instruments or based on an underlying security. In this case, in the price of Bitcoin. This tells us that they do not actually own Bitcoin or we are buying any cryptocurrency token at all, but rather “bets” on its price. In addition, the options contract offers the opportunity to the trader to buy or sell the underlying assets at the end of the contract time. This is why it is called options.
Although these types of financial tools may be new to most of us, the truth is that they have been around for some time in traditional markets. Trading with Bitcoin options has been more active since 2018 and has been implemented in multiple recognized platforms in the world, as in the case of Binance.
How to start trading bitcoin options?
First, you will have to choose a cryptocurrency exchange that has integrated the options to its list of instruments. Recall most of the exchanges offer different derivatives of cryptocurrencies and the spot market to operate, as well as some also have options.
In general, we will see the different options contracts that we want to trade in the menu of the exchange that we are using. Since we are talking about Bitcoin options, we will probably be facing a series of cryptocurrency options. Choose Bitcoin options.
This symbol first has the name of the underlying asset, then the date, and then if it is a Call, Put options and even its strength level (Weak or Strong). In turn, you should be able to see the level of leverage available on the instrument and later modify it to set your order.
To trade options, we will have to have a trading plan, which we must obey and apply with a strategy. Like other trading instruments (such as perpetual contracts), options carry risk and the goal will always be to reduce losses.
Why should anyone trade bitcoin options?
The main advantages of investing in bitcoin options are:
- Minimum investment: there is no minimum investment amount in options, much less do you have to buy a full BTC token (which relieves many users)
- Losses: the maximum loss is the one paid for the option premium.
- Risk: the risk for this type of financial product always depends on the one the investor is willing to take.
- Hedging positions: investing in options allows you to take hedging positions against market movements.
- Bitcoin options can be traded at any time, as the cryptocurrency market does not set a specific closing time or inactive weekends.
- Benefits: the investor can obtain benefits not only with the variation in the price of a financial instrument but also by correcting future market forecasts.
Bitcoin options trading can be as profitable as futures trading, although there is no magical formula to be successful at it. Managing a decent risk/reward ratio and taking control of your emotions will always be your best weapons in the market.
