What is the New Product Coming in the Crypto Trading Space

The crypto trading space is continually changing. Earlier, there was only Bitcoin. But now, there are more than 5000 cryptocurrencies that are being traded in the crypto trading space. As it is a relatively new market, the possibilities are endless. With the growing popularity of cryptocurrencies, new products are entering into this market.

People have started exploring this market. Recently new products have been introduced in the crypto trading space. These products are Crypto Derivatives, Margin Trading, CFDs Trading, Crypto Trading Bots and Arbitrage Trading. Those who are familiar with general or traditional markets might know what these products are.

If you want to know more about these new products, we can help you.

In this post, we will discuss about the new products that have been introduced in the crypto trading space.

Crypto Derivatives Trading: Derivatives are financial products. The value of these products is derived from an underlying asset. The underlying asset is a crypto asset. Example of a crypto derivative is Bitcoin futures. In crypto derivatives trading, the traders can take advantage of leverage to open or close positions using the price of the underlying crypto asset. It is mostly done to earn a considerable profit or to hedge risks.

In short, crypto derivatives are financial instruments whose value depends on other crypto assets. Crypto derivatives are traded on Crypto Derivatives Exchange between peer to peer. For derivatives trading, the exchange platform needs to integrate derivatives trading in their White Label Crypto Exchange Software. This way, traders can trade crypto derivatives as well as crypto on the same platform. Derivatives need separate regulation on the trading platform.

Example:

In crypto derivatives trading, traders don’t need actually to own the crypto. They can trade on the value of crypto.

Present value of BTC = $5000. Now, Trader M speculates that the value of BTC will rise in the future. He speculates that in one month the value will be $6000. So he will enter into a contract with another Trader L, which states that he can but BTC at $5200 exactly in one month. So here Trader M goes long at $5200.

So after a month if the Trader M still holds his position and the BTC price rises to $5800, he will make a profit. Trader L will be obliged to provide BTC at $5200 to Trader M, irrespective of the current price.

Trader M Profit = $5800 — $5200 = $600

Trader L Loss = $5200 — $5800 = -$600

This way traders don’t need to actually buy BTC because they are only trading on the value of BTC, not on actually BTC.

Types of Crypto Derivatives

Although there are many types of derivatives in the traditional general market, there are three main types of derivatives used in the crypto market.

● Swaps

This type of derivative is used to swap or exchange one kind of crypto asset for another. It is done to make a profit in the future. Here, loans and bonds are mostly swapped to make a profit. They can be changed from fixed to variable interest or variable to fixed.

● Futures

This type of derivative is contracts. It is an agreement. Here the buyer or seller agree to buy or sell a fixed quantity of an underlying crypto asset at the traded price in the future. Each contract has a future date when the contract is settled. Exchanges use White Label Exchange Software to help traders trade in crypto derivatives.

● Options

These are the same as future contracts. Here, the buyers and sellers make an agreement to buy or sell the asset at a price which is already fixed within a set timeline. Here instead of a specific future date, a timescale is fixed. Here the trader doesn’t need to oblige to the agreement. They have a right, but it is totally up to them.

Advantages of Crypto Derivatives Trading

Here are the benefits of trading in Crypto Derivatives.

● Protection:

As the crypto market is extremely volatile, traders can incur severe losses. But with crypto derivatives trading, they can enter into a contract of their choice. Example, they can enter into futures contracts to protect them from volatility. No matter how much the price fluctuates, they will only need to pay the amount of the futures.

● Hedging:

Hedging means protection of one’s funds or portfolio. Institutional investors use crypto derivatives to safeguard their funds and portfolio. Investors can use contracts to invest their money. This way, they can take advantage of leverage and contracts to protect their funds from potential losses.

● Speculation:

Derivatives are mostly used to earn profit from speculation. As you don’t actually need to buy crypto, you can directly predict any price change and enter into a trade. If you speculate that the price of BTC is going to fall, you can sell the crypto derivatives. Similarly, you can speculate on future value to earn a profit.

1. Margin Trading in Crypto Market

Margin Trading is another product introduced in the crypto market along with derivatives. In margin trading, the traders can use their party funds to open or close higher positions. If a trader doesn’t have funds of their own, they can trade on margin provided by others. In the crypto market, the additional funds are provided by other traders. They charge interest on the funds they loan. Sometimes exchanges also provide margin money to traders.

Important terms used in Margin Trading

These are the critical terms used in margin trading. You need to understand these terms to understand how margin trading works.

● Leverage

Leverage means the amount of funds traders can borrow from other traders or exchanges. Some exchange provides 100x leverage, i.e. total trading amount: higher the leverage, higher the risk and higher the potential profit and loss.

● Initial Margin

Traders need a minimum amount of funds to open position while margin trading. Example, traders can open position for $500 and enjoy 50x margin to trade with $5000. So the initial amount, i.e. $500, is the initial margin.

● Used Margin

The total margin needed by a trader to open a position and enter into a trade is known as used margin.

● Maintenance Margin

The minimum amount of funds that the traders need to hold a position is known as maintenance margin. For BTC, the base value is 0.5%.

● Risk Limit

Risk limit is used to prevent extreme losses. The trader can check their risk limit to know their initial margin, maintenance margin as well as leverage for a position.

Margin Trading in Crypto Market Explained

For margin trading in crypto, traders can borrow funds from other traders of exchanges. The traders need a margin account. It helps them to create leveraged trading. Leverage helps to know the ratio of borrowed funds to the initial margin.

Example, to enter into a position of $200,000 at a leverage of 10:1, the trader has to put an initial margin of $20,000. The rest they can borrow.

The ratio of borrowed funds to margin id different in crypto. The ratio range from 2:1 to 100:1. In crypto, the term ‘x’ is used to denote the ratio. Some trading platforms provide 10x leverage while some provide 100x leverage.

Crypto traders can open short as well as long positions using margin and leverage to trade.

Example

Mr A has $100 with him. The exchange platform provides 10x leverage. Mr A wants to open a position by buying BTC worth $1000. He can open a position using an initial margin, i.e. $100 and borrow 10x leverage from the trading platform. This way, he can open a position by buying $1000 worth BTC.

This way, the trader can open position by putting his initial margin of $100 and borrowing $900 from the exchange.

1. Crypto CFDs Trading

CFD = Contract For Difference. Here traders can predict the future change in underlying cryptocurrency. Traders need to speculate and create an agreement. You can, either open contracts on the future change in crypto-related to fiat currency or you can also open contracts on the performance of crypto to crypto.

Here are the cryptocurrency pair traders can speculate on.

· Crypto to Fiat: BTC/USD, ETH/USD

· Crypto to Crypto: BTC/ETH

How does it Work?

In Crypto CFD trading, you can speculate on the performance of cryptocurrency and open or close positions accordingly. Here, instead of purchasing the cryptocurrency, you can open a contract which allows you to trade on the value of cryptocurrency without owning it. If you predict that the price of crypto is going to rise in the future, you can go long. If you predict that the price is going to fall, you can go short. This way, you can easily take advantage of volatility.

In CFD trading, you can use leverage. We already know what leverage is. It also involves margin. For CFD crypto trade, you can use leverage. To open a contract, you only need to deposit a small amount which is known as the initial margin. Example, if the margin requirement is 10% and you want to open a contract for $10,000. Then, you need to deposit $100 and rest you can leverage.

If your prediction is right, you can gain 100% returns by just using $100. Similarly, the risk is also very high. If you incur a loss, you will lose the margin as well as leverage amount. To minimize your loss, you can use “stop loss’ tool. With this tool, you can put a stop order or limit to your closing position.

1. Crypto Bot Trading

Crypto Trading Bots are the latest trend in the crypto world. As we all know, bots are computer programs. These computer programs are developed to trade in crypto. These bots will automatically buy or sell crypto on your behalf as per the set of instructions and algorithms.

How does it work?

These bots have three important parts.

· Signal Generator: Here, the data is entered into the bot and predictions are made based on the data. The signal generator gives a buy or sells signal.

· Risk Allocation: Here, the buy or sell signal is used to decide how much funds should be used in a single order. Here the risk factor is taken into consideration which deciding the amount.

· Execution: Here, the actual allocation of the order takes place. Now, many other people can have similar bots. So to avoid any price manipulation, each bot needs a separate algorithm and process in all these three parts to make profitable choices.

Benefits of Using Trading Bots in Crypto

· Speed: In volatile markets like crypto speed matters the most. Bots can help you seal the deal at the right time with their greater speed.

· Longevity: Bots don’t sleep. They can work all the time, thereby taking advantage of all the opportunities.

· Emotionless: They don’t trade using emotions. They operate with the sheer intention of making a profit.

· Capacity: The have a huge capacity to process all the data needed for trading crypto efficiently.

1. Crypto Arbitrage Trading

Crypto Arbitrage Trading is the new product introduced in the crypto world. Crypto arbitrage works the same as fiat arbitrage in the traditional market. In crypto Arbitrage Trading, you can trade on the price difference of a cryptocurrency in different markets and exchanges.

As well all know, cryptocurrency prices change as per exchanges. You can buy a cryptocurrency for less price from one exchange and trade it for a higher price on another exchange. This way, you can make a quick and easy profit.

Crypto Arbitrage Methods

· Regular Arbitrage: In this method, you buy and sell the same crypto coin on different exchanges to make a profit. Example, you can buy BTC from Exchange 1 for $8,500 and sell the same on Exchange 2 for $8,700 to make a $200 profit.

· Triangular Arbitrage: Here, instead of using a single cryptocurrency, you can use the price difference in 3 currencies. Here, the exchange will remain the same and currencies will change. Example, first you buy BTC by using USD. Then you sell the BTC to buy ETH. Then you convert the ETH again into USD to make a profit. Here you have to convert currencies on the same exchange. Example, you can buy 1 BTC for $8,500 from Exchange A by using USD. Then you convert the BTC to ETH. Now, you can sell 1 ETH for USD 8,900. This way, you can make $400 profit.

Benefits of Crypto Arbitrage Trading

· Quick profit: You can earn quick profit by taking advantage of the price difference between exchanges.

· Opportunities: As there are many exchanges which offer different price of the same currency, there are many opportunities for traders.

· Volatility: Crypto markets are volatile. The price keeps on fluctuating. If you make the right decision, you can make huge profits.

· Less Competition: Arbitrage trading has huge competition in the traditional market. In the crypto market, there are fewer people involved in this type of trading.

These are the new products introduced in the crypto trading space. You can now use arbitrage trading method, trading bots, CFDs, margin as well as derivatives trading in crypto. A Crypto Exchange Development Company helps businesses to start their own crypto derivatives trading platform. These exchanges provide facilities like leverage, margin trading, bot trading, arbitrage, CFDs to traders. With the introduction of these new products, the crypto market is flourishing as traders from other markets are now trading in crypto.