Delta is a unique crypto exchange offering innovative derivative trading instruments in crypto derivatives. Derivatives, as the name suggests, derives its value from an underlying asset. It is a mutual contract between the buyer and the seller.
Unlike spot trading, derivative traders are not required to own the underlying asset. For instance, let us consider the BTCUSD contract. Here, when trading this instrument, you are not actually buying or selling BTC. However, the price of this contract is designed to follow the price of Bitcoin. While only rising markets can be traded in the spot market (not applicable for intraday), derivatives provide the traders, the freedom to trade both rising and falling markets.
Now, let’s explore the products offered by Delta Exchange.
A futures contract is an agreement between the buyer and seller to exchange or transact an asset at a predetermined price on a predetermined future date. It is a mandate for both parties to execute or exercise the contract on or before the predetermined future date. Delta (not to be confused with Delta Exchange), a variable that determines the future contract premium, is a ratio that calculates the change in premium of the futures contract to the change in the underlying price. The delta for a futures contract is one, i.e., for every single point move in the underlying asset’s price, the futures premium moves one point.
Like a futures contract, options contract is also a form of derivative that functions similar to the futures contract, except that the option buyer is not obligated to execute the trade within the expiry date of the contract. Both futures and options can be used to make money or to hedge current investments.
Benefits of Futures and Options
- In trading, a long position means a trader has bought an asset and is expecting the price to rise higher, so he can sell his position and realise the profit. On the flip side, a short position is a condition where the trader owes (sold) an asset to another person but has not actually bought the asset. It is not possible in spot trading to carry a short position to the next day or the next trading session. Derivatives allow the traders to carry both long and short positions to the next trading day.
- Leverage allows you to open positions that are bigger than your trading capital. If your broker provides you with 10X leverage, then you are allowed to open a position ten times larger than your trading capital. The maximum allowed leverage for futures listed on Delta Exchange is as high as 100x.
This is a new type of financial instrument in derivative trading, where the trader can bet on the size of movement, instead of direction. In conventional derivatives trading, the trader has to be right about the direction of the move in order to profit. Whereas, in move option, the traders can bet on predicting the size of the price movement instead of the direction, thereby, trading the market volatility. Currently Delta Exchange is offering Bitcoin and Ethereum move options.
Interest Rate Swap
A forward contract that allows two parties to swap their future stream of interest obligations with each other is called an interest rate swap. For instance, company A has taken a loan of $1M at an interest of LIBOR+2%, and company B has taken a loan of $1M at a fixed interest of 7%. When company A and B agrees to swap their interest rates between each other, an interest rate swap is performed.
Spread denotes a type of trading strategy in the options and futures market. Spreads, in plain terms, are hedging strategies, where the trader uses one contract to hedge the other. The three types of spreads are vertical spreads, horizontal spreads and diagonal spreads. A horizontal spread or calendar spread, has the same strike price but different expiry dates.
We have now broadly understood the different types of derivatives available in the markets to trade. These derivatives can be traded with the help of a trading exchange. Delta Exchange is one of the exchanges that allow traders to trade in different instruments as per the trader’s requirement.
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