When trading Bitcoin for fiat or other cryptocurrencies, one asset is exchanged for another. This is called spot trading.
But there also lies some unique and interesting ways to trade cryptocurrencies that can greatly change the way the trade position works and how much profit can be generated.
CFDs stand for contract for differences. These are contracts, representing an asset, in which the difference in the asset’s price from when the contract is opened and closed determines if a profit is made.
CFDs can represent any asset, creating near endless possibilities and flexibility for the platforms that offer this type of crypto derivative.
Future contracts are a contract between a buyer and seller to exchange an asset at a set point in time, at a specific price.
Perpetual swaps are another type of contract that acts like a futures contract yet with no expiration.
This type of contract is tied to the spot price of an asset. As spot price deviates from the contract price, a premium funding fee must be paid from the trader on the side of the premium. This encouraged traders to consider opening the opposite position, thus bringing the perp price back to closer to spot price.
This funding aspect can be used as a tool to gauge sentiment and open interest.
Options grant a buyer the right to purchase or sell the underlying asset at a certain price, however, the buyer isn’t obligated to do so, highlighting a key difference between options and futures contracts.
Binary options are a contract for an all or nothing bet on cryptocurrency price movement.