Derivatives

Derivatives are similar to futures in the regards that it is a contract that is traded for the speculation on future price of an underlying asset.

A derivative is a contract between a seller and a buyer to trade an underlying asset at a specific price.

Futures

Futures contracts are among the most popular types of derivatives. It grants buyers the right to purchase an asset and sellers to sell an asset at a fixed price in the future (agreed upon date). Most traders close their futures contract before the contract expires, booking their profit or loss in the process.

Forwards

Forwards are similar types of contracts to futures. However, a forward contract distinguishes itself by over-the-counter trading exchanges rather than a centralized exchange. That means buyers and sellers can customize a buy and sell contract between two parties.

Options

On the other hand, options are derivatives that allow an individual to have the right to buy or sell an underlying asset at a given price at the end of the maturity period. However, there are no obligations attached to options contracts. There are two types of options contracts;

• A call option: It gives traders and investors the rights to agree on buying an asset at a specific price and period.
• A put option: It provides traders and investors with the rights to agree on selling an asset at a particular price and period.

Perpetual Swaps

Perpetual swaps are a type of derivatives that resembles futures contracts except it doesn’t have any expiry date or settlement. Traders pay a funding price for perpetual swaps that align the swap’s price with that of the underlying asset. Typically, the perpetual contracts tend to mimic the concept of the margin-based spot market. Thus, the trade is close to the underlying reference of Index Price. However, depending on the contract specifications, the agreement can differ from its funding rate, leverage, and more.

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