Best Strategies for Successful Cryptocurrency Derivatives Trading

Best Strategies for Successful Cryptocurrency Derivatives Trading

The supply of crypto derivatives is on the rise and is shaping new investment strategies. The crypto derivatives market has exploded in recent years and has exceeded the volume of the spot market by different numbers. It has evolved into a diverse ecosystem with trading strategies differing from most traditional modes.

As such, techniques for cryptocurrency derivatives trading demands special attention to making it a profitable venture.

Strategies for Trading With Cryptocurrency Derivatives


When it comes to investment risk, hedging refers to the tactical use of market strategies to counterbalance the threat of adverse price movements. It is perhaps the most common strategy used in derivative trading and is closely associated with forwarding contracts and futures.

A futures contract benefits the miners and traders by specifying the selling/buying price of an asset at a future date. Thus, for miners, the contract serves as a tool to set a selling price for the cryptos mined. It also acts as a defense against future price drops, which affects the miners with losses in profit.

On the other hand, traders hedge with Contract for Difference (CFDs), which allows them to enter a pending long or pending short, simultaneously. The long position is activated when there is an increase in the price of a crypto asset. Similarly, the short position is triggered when the asset price drops.

But, hedging with CFDs must be done with caution. There is a likelihood of both the positions being activated, which leads to massive losses in one.

Price Speculation

Speculative trading is where a financial transaction, with a high risk of losing value, is conducted while holding expectations of a significant gain. When it comes to a crypto asset, the direction of its price movement is speculated by the trader, and a contract is placed accordingly.

Explore Market-Neutral Strategies

Market-neutral strategies like basis trade typically have a long position and short position in the crypto-asset and its derivative, respectively. The method exploits the price differential found in the two markets. Statistical arbitrage is another market-neutral method that reveals the price discrepancies between the crypto-assets.

Quantitative methods help to highlight the price discrepancies between the crypto-assets, which aid traders in betting on their prices. You can build long and short positions using a robust positive pricing relationship derived from cointegration and correlation methods.

Swing Trading

This strategy focuses on short intervals within short term trends that fetch smaller gains. While the benefits are modest, persistent efforts will reward you with high annual returns. Remember, open positions for swing trade range from a few days to a few weeks only.

The gains in this strategy for cryptocurrency derivative trading vary between five to ten percent, based on market scenarios. You may resort to technical analysis for evaluating the stock market charts and decide on swing trading.

Technical Analysis

Predicting the price movements and identifying the patterns using historical charts are some of the primary aims of technical analysis. However, it is essential to note some general assumptions like:

  • Prices moving in trends
  • Trends of history repeating itself
  • Markets tend to discount everything

Technical analysis also considers the following indicators.

  • Moving averages
  • Price trends
  • Resistance and support levels
  • Chart patterns
  • Indicators of volume and momentum

Look at the News

The news plays a crucial role in the price variations of cryptocurrencies. News like hacking of a cryptocurrency exchange or unfriendly government regulations towards crypto is likely to make the prices plummet. On the other hand, news like a business integrating crypto into its operations causes the price to rise. Staying abreast of the stories gives you an edge to minimize the losses and boost your profits.

The strategies for cryptocurrency derivative trading can help in identifying and realizing the best trading opportunities. With the increasing availability of crypto derivatives, the blockchain asset class is becoming an attractive commodity for institutional investors.

Hence, employing a good strategy helps to mitigate risks and protect your investment portfolio from losses.

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