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CEX.IO Broker: how does investing in cryptocurrencies change with the advent of derivatives?

CEX.IO Broker: how does investing in cryptocurrencies change with the advent of derivatives?

Derivatives trading is gaining popularity in the Russian cryptocurrency market. Margin trading platform CEX.IO Broker offers a wide range of options for trading derivatives.

The most obvious way to earn money on cryptocurrencies is familiar and familiar: bought cheaper – sold more expensive. However, this method has its limitations:

financial: investing through ownership requires a lot of capital;

technological barrier: to earn money on each of the selected cryptocurrencies, you will need several wallets, you will have to understand how they work, how to safely store cryptocurrency, etc.;

transaction costs: to switch from one cryptocurrency to another, you will need to convert it, and this is time and cost;

restrictions in the implementation of the strategy: you either buy or sell a crypto asset. It is impossible to buy and sell the same cryptocurrency at the same time.

Simply put, “buy-sell” is a method that is beautiful in its simplicity, but extremely inflexible.

If you go from the narrow concept of “owning cryptocurrency”, which is carried out when you directly buy any digital asset, to the broader concept of “invest”, you can earn without owning the tool. Such opportunities give investors derivatives that allow them to benefit from changes in asset prices without owning it.

Why derivatives are needed

Cryptocurrency derivatives, i.e. instruments derived from existing cryptocurrencies, will actively develop in the market in the coming years. You work with a crypto tool without owning any of the currencies in the pair, but earning on their volatility and not losing money on conversion.

The evolution of the cryptocurrency market follows the same scenario as the evolution of classic markets, only much faster.

Its essence is a gradual increase in liquidity and trading volumes on the spot market. This is also due to the emergence of derivative markets. When the market has already accumulated a certain amount of liquidity, there are tools that, as their popularity increases, help to increase it further. The higher the liquidity, the more complex these instruments can become.

Currently, the cryptocurrency derivatives market already offers a wide range of instruments-from simple CFDs (contracts for difference in prices) to complex options. Each derivative has its own mechanics, its own set of rights and obligations, and, as a result, a different impact on the market.

The derivatives there are opportunities that are not in the spot. But working with derivatives requires an understanding of their characteristics. Derivatives have their own value, and this is not a passive form of investment. You can’t open a position and forget about it for a year. But the good news is that you no longer have to choose between spot market instruments and derivatives.

To choose without choosing

Should we abandon the usual strategies of working on the crypto market in favor of new tools? Not at all. The industry has solutions that allow you to implement different strategies simultaneously.

At the beginning of 2020, cryptobroker CEX.IO Broker has launched a derivative platform for trading digital assets based on CFDs. Due to the fact that cryptobroker is part of a group of companies headed by a regulated crypto exchange CEX.IO as a user, you get access to two platforms at once using a single login and a wallet for storing cryptocurrency. This allows you to simultaneously trade in the supply market via an exchange (when you sell and buy the cryptocurrency itself) and the non-delivery market (when you buy and sell CFD derivatives) via a shared wallet. This way you can implement both separate trading strategies in the derivatives market, and strategies that combine the derivatives and spot markets (for example, for hedging).

Currently, seven pairs are available 24/7 on the platform: BTC/USD, BTC/EUR, ETH/USD, ETH/EUR, ETH/BTC, LTC/USD, LTC/BTC.

CEX.IO Broker allows you to hold up to five trading accounts, which means you can work with different strategies on separate accounts to understand which one is more profitable:

use a more risky approach on one account, and trade conservatively on the other;

work with different duration of transactions: scalping within a day, or investing for a long time;

trade each pair on a separate account to understand more clearly how the tool works;

stick to a proven strategy on one account and conduct experiments on another.

Flexible risk management when trading cryptocurrency CFDs on CEX.IO Broker is implemented using cross-margin within trading accounts and isolated margin between accounts. Cross margin allows you to use the profit of one position on a trading account to meet the margin requirements of another position on the same account. Isolated margin means that each trading account has its own margin levels that do not affect each other. You can use both cross margin and isolated margin at the same time.

The emergence of an opportunity to earn on cryptocurrencies without owning them is a natural stage in the development of the market. There are investors who are familiar with the buy-sell strategy, there are those for whom derivatives are a flexible tool for turning market opportunities into profits, and there are still others who find a combination of strategies, markets, and tools that gives them the greatest profit. And the beauty of the market is that you determine this combination for yourself.