Derivative trading is an issue that has recently gained considerable popularity globally. Events such as the r/wallstreetbets scandal and the growing popularity of Bitcoin have effectively attracted investors’ attention to this form of investment. Crypto derivatives trading is still a kind of novelty. Today, however, we will look at it and check if and how much you can earn on it.
Cryptocurrency Derivative Trading
Cryptocurrency derivative trading allows investors to borrow funds from a broker for investment while paying a margin. The level of leverage determines the percentage of a trader’s total contribution. For example, a leverage ratio of 1: 100 specifies the margin of 1% of the total value of the order.
Although derivative trading comes from traditional financial markets, cryptocurrencies have become a fascinating niche for this form of investment. There are already specialized platforms on the global market that support this form of investing. A great example is Geco.one derivative exchange. Poles have been developing their exchange for some time, offering leverage of 1:100 on the most popular cryptocurrencies.
Derivative trading is primarily a short-term investment strategy. Therefore, an important aspect is the lack of price slippage resulting from the exchange rate differences of the traditional order book. It is worth paying attention to whether the given exchange reduces such risk when trading with leverage. With platforms like Binance, leverage trading relies on a traditional exchange. Geco.one, on the other hand, focuses only on derivative trading — there will be no price slippage, and an external provider provides liquidity.
Make Money on Derivative Trading
There are many stories about making fortunes on derivative trading. Let’s look at the profit scale based on the example below:
We buy 10 BTC for 10,000 USD apiece.
The total investment is 100,000 USD.
For trading, we will use trade with a leverage of 1: 100, which will result in the required margin being only 1000 USD.
Suppose BTC increased its price by 10% — it is now worth 11,000 USD.
Let’s sum up our bill!
The total value of our investment is now 110,000 USD — this means that thanks to our deposit of 1000 USD, we were able to get a return of 10,000 USD (no commission). The return on investment is, therefore, as much as 1000%!
However, it should be remembered that there are also huge losses on the exchange. Therefore, it is good to think carefully about your investment strategy.