Options, Futures, and Sentient
What’s the best for you?
You may recall how in one of our previous articles we discussed the differences between spot and futures trading, and how each is suited for different types of traders. We also juxtaposed those trading methods with Sentient and considered how our advanced trading algorithm could utilize both spot and derivatives trades to perform various strategies for optimal results.
Today, we’ll be taking a look at the broader umbrella that includes futures trading, and discuss 2 of the most commonly used types in the crypto market — options, and futures. They’re called derivatives, and they are utilized in a wide range of trading strategies.
Although discussed in our previous blog post, let’s revisit what exactly futures are.
Futures contracts are agreements between various parties to buy or sell an underlying asset at a specific price. In a futures agreement, there are obligations in place whereby the buyers and sellers must adhere, specifically the date at which they have to purchase or sell the asset.
Since these are agreements, traders don’t own the underlying assets themselves, but rather various rights that can prove to be profitable under the right circumstances. For instance, futures can be used to hedge current positions in case market conditions sway in the wrong direction. A common example of this involves miners, and how they may open up short positions during bear markets to continue funding their operations.
What are options, and how do they differ from futures?
Options, as the name implies, give the investor the right — but not the obligation — to buy or sell at a specific price until a specific date. When the contract expires, the investor can no longer execute the trade, however since there are no obligations, they don’t end up losing significant amounts of money because no obligations are involved on their end.
This makes options rather convenient, but in order to establish such positions, investors need to pay a premium. The price of the premium varies on various factors, such as how long the contract is valid, and exists to prevent investors from opening up countless positions. This makes it such that in order to make a profit, investors need to wait until the profit from the trade exceeds the premium costs.
Factors and differences to consider — which suits you the best?
As is apparent, options — although risky — are far less so than futures. The nature of options allows investors to opt-out of trades that will end up harming them, at the preferable cost of a premium. Options can be a great starting point for newer traders who want to experience and learn trading derivatives, as they can open relatively harmless positions that won’t come back to bite them if things go south,
On the other hand, while futures may be risky, they offer higher margins and leverage than their optional counterparts, and tend to be more liquid as well. Those who have an appetite for higher risk, leverage, and gains, may choose futures trading as their go-to derivatives.
The ideal method, therefore, would be to consider the nature of the two variants above, as well as your experience, insight, intentions, and positions in the market, in order to assess what is the best derivatives contract for you. In addition, you could — and probably should — practice trading derivatives in a simulated environment, using test balances and fake positions, in order to gain the much-needed experience required for the real-deal.
Or you could trade with Sentient.
Does it count as trading when an AI is trading on your behalf? It may not be as thrilling of an experience, but Sentient is a powerhouse of an algorithm that can keep up with the market at a pace no human could possibly match. Connected to dozens of centralized and decentralized exchanges alike, Sentient seeks to seize opportunities at lightning speeds, and utilizes a host of different trading strategies to make the best of every situation.
Share your trading experiences with us in our community groups! Find our whitepaper, socials, and more with the links below:
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