Derivatives are financial instruments whose value is derived from the value of the underlying asset. These assets can either be cryptocurrency, fiat currency, or even commodity.
Traders often use derivatives for speculative purposes or hedge risks by betting on the future price of the underlying asset. In the derivative market, two types of contracts are viable.
While ‘Options’ allows traders to buy and sell the underlying asset at a given price, ‘Future’ ensures the transaction must proceed before the expiry date. Although sticking with the derivatives market comes with serious risks, as seen during the financial crisis.
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