Crypto Futures Vs Options: Different Strategies To Trade

In the world of crypto trading, futures and options are two financial instruments utilized to make profits on or hedge against during the price fluctuations of other investments.

Several debates on futures vs options consume traders’ time. Still, a key difference between them is that for trading futures, contract holders must buy the underlying asset on a particular date in the future. In contrast, in options, the contract holder can choose whether they want to execute or not. The different trading futures vs options strategies result in holders’ varying rewards, trading facilities, and earnings.

How do Crypto futures operate?

If one is looking to minimize the volatility while simultaneously benefitting from price alterations, they can choose crypto futures as the smartest way out. Crypto futures are derivatives through which buyers and sellers mutually agree to exercise trading at a pre-established date and price in the future.

The contracts traded in crypto futures do not carry the true value of the crypto being used, implying that you do not really own the cryptocurrency. The pre-established contract term ensures no economic benefit is conferred on the trader that usually comes with purchasing cryptocurrency.

The benefit of crypto futures is that they are cost-efficient, wherein the trader does not have to pay a premium before issuing the contract. It further rewards the trader’s speculation, enabling them to trade with great ease in spite of the drop or increase in prices.

How do Crypto Options work?

Crypto options are derivative contracts that allow the buyer the entitlement to either buy or sell assets at a finalized date and price. The two options are to “call” or the right to buy and “put” or the right to sell.

Crypto options work like other derivatives, wherein it gives the traders the choice to predict as well as take advantage of price fluctuations in the market. Ordinarily, people trade crypto options as it offers them a comparatively low-cost solution and a lesser risk avenue during trading. 

Different strategies to trade futures vs options 

To understand the trading differences between futures vs options, an overview of future and options trading is given below: 

Trading with crypto futures 

The process of crypto futures trading needs one to choose between USD-Margined Futures Contracts and Coin-Margined Futures Contracts. USD-pegged coins futures support the delivery and perpetual contracts, offering maximum leverage of up to 125x. On the other hand, Coin-Margined Futures Contracts let the participants quote and settle in many cryptocurrencies.

Trading with crypto options

Here, traders are presented with two options for determining their trade – either they can call or put the trade. Calling refers to the right to buy the underlying asset, and put indicates the right to sell the asset.

Differences between futures vs options 

  • In futures, the contract holder must mandatorily take ownership of the underlying asset, but in options, the contract holder has the right yet no obligation to purchase the underlying asset.
  • In futures trading, the price of the future purchase is mostly determined by the current market price, whereas in options, the price of the future purchase has already been specified in the contract.
  • The price might fall below $0 in futures, but in options tradings, the price can never fall below $0.
  • In futures, the price changes are less volatile, but in options, the value declines rapidly over time, making more fluctuations in the underlying asset’s value.

The choice between trading crypto futures and options is entirely dependent on the crypto trader’s preferences. However, one vital factor they can consider before opting for one between the two is which of the two can assist in maximizing their profits. 

While crypto futures offers purchasers a vast market to trade in, crypto options ensure a low-risk space. One cannot naturally determine the market fluctuations and volatility, but they can potentially mitigate their loss by weighing futures vs. options’ pros and cons.