Cryptocurrency Options Vs Futures Trading : Difference Explained

Cryptocurrency Options Vs Futures Trading : Difference Explained


Cryptocurrency Exchanges never delayed to update itself. The very soon latest turns out to be old in this industry. Once, people hesitated to sign up in the crypto exchanges and thought of the Crypto market as the risk but, now in 2020, the world has turned 180 degrees in their view for the Crypto market and have recognized it.

As people started to recognize the crypto industry, many of its entities have been pushed into a compulsion to do more research, find out the trends, update themselves, and keep the people aware of the trend. The most and prime entities of the crypto industry are “crypto exchanges “. 90% of crypto trends will be identified only from the update of crypto exchanges. Thus, crypto exchanges have played a vital part in the growth of the cryptocurrency industry. 

By identifying the needs and demands from end-users, many cryptocurrency exchanges have started to adopt futures trading and options trading, in the very recent days. Crypto market headlines are filled with futures trading and options trading, But, many blooming traders often get confused about what is the difference between these major crypto trading features.

So, here in this article, I am going to figure out the difference, join me. 

Introduction to Futures and Options Trading

Future trading and options trading play a versatile role in the stock market, after understanding its phenomenal power, Cryptocurrency Exchanges now started to adopt these features to favor the potential crypto traders.

We all know the crypto market is capricious. Futures as well as options trading act as a powerful shield that prevents traders from market fluctuations.

Have you ever thought about how futures and options trading evolve?

Let’s have a quick look,

Forward trading is the first-ever trading methodology introduced in the market, it’s like the gentleman agreement but it has risks such as 

  •  Default risk
  •  No Regulatory transactions
  •  Rigidity risk
  •  Liquidity risk

The futures contract has evolved as the superior thing that has overcome the above disadvantages of the forward contract and later, options trading has evolved.

Options trading and Futures trading

The foundation for any kind of trading is Future Prediction. It obviously differs from person to person. One has an Up View and the other has a down view for the same asset.

 If Person A, Predicts price growth, he becomes the buyer and if Person B predicts the price drop, he becomes the seller. This prediction activity is the basic fundamental thing that makes the market run.

What is Options Trading?

Options trading, we could say options contract is the kind of agreement that lets traders buy or sell assets with a fixed price on a fixed date in the future.

 i.e, You have the right, not the obligation,

 To make this trading more profound, these options are added in it 

1. Call option - For buyers
2. Put option - For Sellers

The Amount of price that is used to buy the call option or the put option is called the premium.

They are future classifieds as

  • American options - This allows traders to execute the contract on or before the Expiry date
  • European options -  It only allows the trader to execute a contract on the expiry date

How Options Trading Works In The Cryptocurrency Industry?

Let’s see the example to understand it in a better way.

Consider, Alice is a trader in the Cryptocurrency Exchange, says Binance. She Predicts that the price of the BTC will increase in the future, so decided to buy a Call option.

She bought the call option for 50$ as a Premium

As per her prediction, The Price of BTC increases from 7,000 $ to 7,500 $, she thought it at the right time and proceeded with trading, she executed the Contract.​

At first, we need to know, is it the Profit or Loss? and How much the profit /loss is in the above scenario

There is a Formula to calculate, Don’t panic, trust me, it’s simple.

Realized(profit and loss) = [Current Price - Actual price during contract] x No of asset

In the above example, the Current price is 7500$ and the actual price during the contract is $7000 and the number of BTC (asset) is one.

Profit and loss                    =  [7500 - 7000] x 1
Realised Profit and Loss    =  500$

 Net profit = Profit - Premium
                  = 500 - 50
   Profit       = 450$

 Here, Alice has made 450$ as a profit.

The same is applicable for put options for the selling purpose. Alice can hold the contract and it settles automatically at the expiry date.

If the price of the BTC decreases, the maximum loss for her is the Premium price, i.e 50 USD but the profit is remarkable. Profit is confirmed when the net profit price is more than the premium price.

In options, there is a limited down site and unlimited up site.

Crypto Exchanges that Offers Options Trading 

The Premium price and methodologies differ for exchanges, some of the exchanges offer options trading are 

1. Binance
2. BitMex
3. LedgerX
4. DeriBit
5. Quedex

What Is Futures Trading?

Future trading is the same as options trading, traders have to choose the fixed date, the predetermined price for an asset.

Here, the buyer and seller obligated to proceed with the trading.

Future trading can be used for long term as well as short term. If the trader expects the decline in price, they bought short term trading and if the trader believes in an increase in price, they buy long term future trading

How Futures Trading Works In The Cryptocurrency Industry?

Let’s take an example, 

Alice wants to buy BTC and she expects that it will increase in the future, she decided to buy a futures contract.

The price of one BTC is 10,000$, she plans to buy 10 BTC, Consider, the cost for a single contract is 100$ and she wants 10 BTC

Contract cost = number of contract x cost of one contract

In this scenario, she wants to buy 10 BTC, so the number of contracts is 10

Substitute things,

Contract cost    =  10 x 100 = 1000USD
 Order value     =   cost of the contract / Entry price
 Entry price is the current price for an asset, here 10,000 USD
                         = 1000/10000
 Order value     = 0.1 BTC
Therefore, 0.1 BTC is the initial margin amount for a contract.

If she did not execute the contract on the date, it is automatically designed to execute by calculating the average price in the last hour. Alice needs to pay an extra fee for the automatic contract execution.

We can’t deny the truth of High Risk in futures contracts.

Cryptocurrency Exchanges that Offers Future Trading


Difference Between Cryptocurrency Options Trading and Futures Trading

  • The notable key risk difference is Future Trading is the obligation and the Options trading is the right.
  • The Risk involved in the options trading is lesser than the Future trading
  • Options trading is designed profoundly for Selling and buying with call options and put options.
  • Automatic settlement occurs along with the additional fee in the futures contract on the expiration date where options contract is not the obligation
  • Calculation of Profit and loss is simple to calculate in Options trading and it is little complicated in futures trading

Why Options Trading and Futures Trading are Essential For Crypto Exchanges?

Both trading benefits the trader in profit, moreover during the COVID-19 pandemic there was huge volatility in the cryptocurrency industry. So traders had very less options to make a profit. To figure out and resolve those kinds of issues from traders, many exchanges integrate options trading and futures trading. The first and foremost benefit of both trading features is, “ Both Benefits Traders”. So, obviously it is mandatory for existing and emerging crypto exchanges to integrate such features. 

Who we are?

Bitdeal is the leading Cryptocurrency Exchange Development Company that builds Crypto Exchanges with the latest and updated features. Being the early bird in the industry, we are never afraid to try new things. We, the strong team of potential developers and business advisors always seeking new trends in the Industry. By following the trends and demand we have added options trading and futures trading as default in our cryptocurrency exchange script.

You Can check the live demo at any time with us!!!



options and futures trading

About Dheivanai

Greetings! This is Dheivanai! My love for writing transformed me as a blogger and the Passion for Crypto industry turned me as a business advisor at bitdeal. Crazy towards digging deep and analyze the new trends in the Cryptocurrency and Blockchain Industry. Follow us to read interesting and existing blogs! Stay tuned, Stay updated!

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