Why is crypto derivatives trading increasingly popular?

Last year was a winning year for the cryptocurrency market. Bitcoin reached an all-time high above the $68,000 mark, El Salvador became the first country to adopt Bitcoin as legal tender, institutional investors got involved, companies within the industry raised millions in investment to support the ecosystem, new trendy projects like NFTs and the metaverse thrived, mainstream adoption increased, and cryptocurrency trading became more accessible – especially with crypto derivative products.

As cryptocurrencies are often seen as a short-term trading tool, cryptocurrency trading through derivatives has become one of the most popular ways for retail traders to take advantage of the crypto-market’s volatile prices over the short-term with scalping, day trading, as well as swing trading strategies. CFD, or Contracts For Difference, is one of the most popular products used by retail traders to trade on margin with short-term and aggressive trading strategies to take advantage of quick token price movements. 

With CFDs, crypto-traders do not own any tokens, which means that they don’t have to deal with the complex process of buying and securing tokens in crypto-wallets. Thanks to leverage, CFDs on crypto allow traders to start with a small amount of trading capital and get more exposure to the crypto-market than what their balance would ordinarily allow. It also means that coin price movements are amplified, which is both more lucrative and risky in equal measure. Another advantage of CFD trading is that short-term traders can take advantage of all market conditions, as they can bet on a price rise through long positions (buy trade) or a price fall through short positions (short trade). CFDs were originally developed for non crypto assets such as currency pairs or commodities. More recently, online brokers such as easyMarkets have expanded their CFD ranges to include multiple cryptocurrencies that can be traded against the US dollar.

While the interest of Millennials and Gen Z in crypto-trading reached new heights last year, sophisticated and active investors, as well as institutions, are also increasingly interested in investing in this market. However, they are looking for more complex alternative investment products like futures and options. They are also required to observe certain rules (compliance) when it comes to the assets they invest in. The transparency, efficiency, reputation, as well as reliability of regulated derivatives marketplaces are attractive for these kind of professional investors. 

The growing suite of exchange-listed cryptocurrency derivatives available to market participants, like Bitcoin and Ether futures and options, as well as micro Ether and Bitcoin futures, has created a liquid option for those who are looking to hedge their BTC and ETH position hold in the spot market or gain exposure to cryptocurrency in a secure environment. By creating new opportunities for a broad array of diverse clients, the crypto-derivative market is attracting more and more traders and investors into the market. This means that the crypto-market will keep growing and become more efficient over time. That’s why many analysts believe that the increasing crypto-derivatives trading volume is a positive thing for the overall crypto-market. However, other analysts highlight that derivatives are also mostly considered speculative products, which can strongly impact the crypto-market.

None of the information on this website is investment or financial advice and does not necessarily reflect the views of CryptoMode or the author. CryptoMode is not responsible for any financial losses sustained by acting on information provided on this website by its authors or clients. Always conduct your research before making financial commitments, especially with third-party reviews, presales, and other opportunities.

Amaury Reynolds

A freelance writer covering many topics.

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Amaury Reynolds

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