What is Derivative Trading?
Derivative Trading is a form of trading that allows you to use an asset you don’t have in order to make more money. For example, if you wanted to buy 10 shares of APPL stock or 1 Bitcoin, but only had one tenth of that, you could use 10X (10 times) leverage to have enough buying power to purchase it. So if you have $1,000 and bitcoin is $10,000, then you could use 10X leverage to buy 1 BTC. If the price goes up by 10%, you will double your money (100% profit).
Why? Because having a derivative is like taking a fraction of something and using that as more power than itself. It means that it inflates the value or buying power of something. Banks do this all the time. What they practice is called fractional reserve lending. When a bank takes $100 dollars, they can then lend out another $900 and keep the $100 for you. When a trader does this, we can make massive profits, and also take massive losses.
It’s always important to practice strong trading principles so that you don’t blow up your account.
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Types of Derivative Trading:
Bitcoin derivatives, and, therefore, crypto derivatives, are also a form of derivative trading. They take the same principle of derivatives and apply that to the cryptocurrency market.