Crypto Contract Trading

Contract trading is a method of trading assets that allows traders to access larger funds through the leverage of a broker. Contract trading has been around for a long time. This is the primary way day traders make profits by trading asset price movements. Simply put, contract trading allows traders to borrow funds to open trades with larger margins for higher potential profits.

Like margin trading, contract trading is a type of derivative – a financial instrument that derives value from an underlying asset (stocks, commodities, cryptocurrencies, etc.). Derivatives can be traded independently of the underlying asset. In other words, you do not need to own the underlying asset to trade a contract. Cryptocurrency markets are highly volatile, which provides traders with more lucrative opportunities to make larger profits (while also facing greater potential risks).

The cryptocurrency industry started with spot trading, where traders would buy and hold digital assets and sell them when the asset's price increased. This is a safer way to trade, but leaves the trader at the mercy of asset price movements. One of the most common problems with spot trading using cryptocurrencies is that these financial assets are fairly new. It takes time for an asset to mature and prove that its fundamentals work in the real world, where it can move from a niche market to one that can be adopted at scale by retail and institutional investors.

Benefits of Cryptocurrency Contract Trading

1. Allows to Trade with More Money than Investors Actually Have

The main benefit of using derivatives is leveraged trading. Leverage allows you to borrow money to trade. This means you can potentially increase your earnings. Of course, the counter to this is that any losses you suffer will also be multiplied.

2. No Need to Buy Real Bitcoin

The fact that Bitcoin contracts are not actual Bitcoin means you don’t have to worry about the security of your stored Bitcoin assets. If a hacker gains unauthorized access to a Bitcoin wallet and sends the funds somewhere, there is no way to get those funds back. By trading contracts, you are simply trading the price movement of an asset without having to purchase, own, and store the asset.

3. Faster and More Convenient

Cryptocurrency networks take time to process transactions. These transactions can be particularly slow and costly when the network is busy. In contrast, derivative contracts are processed immediately.

4. Low Cost

As the market matures and more people trade contracts, competition among cryptocurrency trading platforms increases. To attract more traders, these platforms often lower trading fees. On SnapEx, trading fees are among the lowest on the market – just 0.15% per trade.

Future of Crypto Contract Trading

Toward the end of the last cryptocurrency bull run in December 2017, Bitcoin futures — a trading method similar to contract trading — were introduced on the Chicago Mercantile Exchange (CME), one of the world’s largest trading markets. The debut of futures and options trading is widely considered a milestone in the development of the cryptocurrency industry.

Crypto contract trading is still considered a high-risk activity, mainly due to the current lack of regulation among countries, developed or not. However, experts predict that contract trading will eventually become more popular in the near future due to numerous benefits such as adding additional liquidity to the market and reducing risk. Many governments are also slowly adopting more crypto-friendly approaches and are actively looking to legislate cryptocurrencies in their respective countries. It serves the market in a number of ways, including opening it up to a wider audience, even from anti-crypto governments, and providing a relatively more secure way for traditional institutions to join the crypto space.