Crypto Options Trading Vs Crypto Futures Trading - KoinX (2024)

Cryptocurrency trading has become increasingly popular in recent years, with many investors looking to profit from the volatile price movements of digital assets. One way to trade cryptocurrencies is through derivatives, such as futures and options.

Futures contracts are agreements between two parties to buy or sell an asset at a predetermined price on a specified date. On the other hand, options contracts give the holder the right but don’t obligate them to buy or sell an asset at a predetermined price on or before a specified date.

Both types of derivatives have unique advantages and disadvantages. Hence, it is essential to understand the differences between crypto options trading and futures trading.

Options trading in crypto is a type of derivative trading that gives the holder the right but doesn’t obligate them to buy or sell a cryptocurrency at a predetermined price on or before a specific date.

In other words, an options contract is an agreement between two parties, the buyer and the seller, where both have the right to buy or sell a certain amount of a cryptocurrency at a specific price (known as the strike price) on or before a particular date (known as the expiration date).

There are two main types of options contracts:

• Call options give the buyer the right to buy a cryptocurrency at the strike price on or before the expiration date.

For example, let’s say that the current price of Bitcoin is $10,000. You believe that the cost of Bitcoin will go up, so you buy a call option with a strike price of $11,000 and an expiration date of one month from now. The premium for the call option is $100.

If Bitcoin’s price rises above $11,000 at the expiration date, you can exercise your option and buy Bitcoin for $11,000. This would give you a profit of $1,000 per Bitcoin (minus the premium you paid for the option).

However, if the price of Bitcoin is below $11,000 at the expiration date, you can let your option expire worthless. In this case, your only loss would be the premium you paid for the option.

• Put options give the buyer the right to sell a cryptocurrency at the strike price on or before the expiration date.

You believe that the price of Bitcoin will go down in the next month. You can buy a put option with a strike price of $20,000 and an expiration date of one month. This means that you have the right, but not the obligation, to sell Bitcoin at $20,000 on or before the expiration date.

If the price of Bitcoin does go down to $20,000 or below, you can exercise your put option and sell Bitcoin at $20,000, even though the market price may be lower. This would allow you to lock in a profit.

However, if the price of Bitcoin remains above $20,000 at the expiration date, your put option will expire worthless. You will lose the premium you paid to buy the option, but you will not lose any more money.

Here is a step-by-step example of how options trading in crypto works:

• Choose a cryptocurrency to trade: Various cryptocurrencies are available for options trading. Some of the most popular options include Bitcoin, Ethereum, and Litecoin.
• Select an options exchange: Several different options exchanges offer crypto options trading. The most popular options exchanges include Deribit, BitMEX, and OKX.
• Decide whether to buy a call or put option: A call option gives you the right to buy a cryptocurrency at a predetermined price on or before a specific date. A put option gives you the right to sell a cryptocurrency at a predetermined price on or before a specific date.
• Choose a strike price: The strike price is when you can buy or sell the cryptocurrency.
• Choose an expiration date: The expiration date is the date on or before which you must exercise your option.
• Pay the premium: The premium is the price you will pay for the option. Many factors, including the current price of the cryptocurrency, the strike price, the time to expiration, and the implied volatility of the cryptocurrency, determine the premium.

Crypto futures trading is a type of derivative contract that allows you to speculate on the future price of a cryptocurrency. Unlike spot trading, where you buy and sell cryptocurrencies at the current market price, futures contracts allow you to agree to buy or sell a cryptocurrency at a predetermined price on a future date.

Crypto futures trading is a popular way to gain exposure to cryptocurrencies without owning them. This can benefit you looking to speculate on a cryptocurrency’s future price without worrying about storing or managing the cryptocurrency.

Crypto futures trading works by allowing two parties to agree to buy or sell a cryptocurrency at a predetermined price on a future date. The two parties to the contract are the buyer and the seller.

• The contract buyer agrees to buy the cryptocurrency at the agreed-upon price on a future date.
• The contract seller agrees to sell the cryptocurrency at the agreed-upon price on a future date.

The price at which the cryptocurrency is bought or sold is called the strike price. The date on which the contract is settled is called the expiration date.

For example, let’s say that the current price of Bitcoin is $10,000. A trader believes that the cost of Bitcoin will be $12,000 in one month. The trader enters a futures contract to buy Bitcoin at $12,000 in one month.

If the price of Bitcoin is $12,000 in one month, the buyer of the contract will buy Bitcoin from the seller for $12,000. The buyer will make a profit of $2,000 per Bitcoin.

If the price of Bitcoin is lower than $12,000 in one month, the contract buyer will still be obligated to buy Bitcoin from the seller for $12,000. The buyer will make a loss of the difference between the strike price and the market price.

Futures contracts typically have a shorter time horizon than options contracts. This is because futures contracts must be exercised on the expiration date. Options contracts can be exercised at any time on or before the expiration date.

You may prefer to trade futures if you want to make short-term trades. Alternatively, options are a good option if you want to make longer-term trades.

When it comes to the world of cryptocurrency trading, options vs futures trading offers unique opportunities and advantages. Crypto options trading allows you to hedge your positions, generate income, and manage risk effectively. In contrast, crypto futures trading allows for more straightforward speculation on the price movements of digital assets.

However, crypto trading may attract taxes based on your country. Although you can manually calculate such taxes, it can be a time-consuming process. Hence, you can use KoinX, an automated crypto tax calculating platform, which offers many features such as accurate tax reports, auto-classification of crypto transactions based on their nature, and spam token filtration.

So join KoinX today to simplify your crypto tax process.