The Crypto market is becoming more and more vibrant and attracting many investors to participate. In that context, new trading tools are also develop to meet the diverse needs of investors. One of the most popular tools today is Option Contract. So what is an Options contract on the Crypto exchange and what does it mean? Let’s learn more about this exchange with Crypto Trading when trading!
Learn about Options contract on Crypto Trading
What are the points of the Options contract on the Crypto Trading exchange that traders are interested in? Let’s decode the information about it with Crypto Trading!
Basic information about what is Options contract on Crypto Exchange
An Options contract, also known as an Option Contract, is a financial instrument. This instrument gives the owner the right, but not the obligation, to buy or sell an underlying asset at a specified price within a certain period of time.
Unlike futures contracts, Options contract have distinct characteristics. This is reflected in the fact that traders are not bound by the obligation to fulfill their positions. Instead, they only have the right, but not the obligation, to buy or sell the underlying asset at a pre-agreed time and price.
Option Contracts play an important role in supporting investors. They provide the ability to hedge potential risks for current investment positions. At the same time, they open up opportunities for profit through speculative activities. Classified as a derivative financial instrument, Option Contracts possess flexibility. They are built on many different types of underlying assets, including cryptocurrencies, stocks, or financial indices.
See more: “Decoding the secret” derivatives in crypto trading
Elements that make up Binary Option Indicator
Call Option and Put Option are two popular instruments on Crypto exchanges. They give investors the right to buy or sell an underlying asset (such as stocks, bonds, or commodities) at a pre-agreed price (strike price) within a specified period of time (term).
Call option:
- Buy a call option: The investor predicts that the price of the underlying asset will increase in the future.
- Profit: When the asset price rises above the strike price, the trader can buy the underlying asset. The trader should sell at the strike price and sell to the market at a higher price, earning a profit.
- Risk: In case the asset price falls or goes sideways, the investor only loses the option fee (paid in advance to the seller) without any other losses.
Put Option:
- Buy a put option: The investor predicts that the price of the underlying asset will decrease in the future.
- Profit: When the asset price falls below the strike price, the trader sells the underlying asset to the seller. The trader should sell at the strike price, earning a profit.
- Risk: In case the asset price increases or goes sideways, the investor only loses the unlock token fee (paid in advance to the seller) without any other losses.
Option execution fee on Crypto Trading Platform
The option premium, also known as the option price, is the amount of money that the option buyer must pay to the option seller to obtain the right, but not the obligation, to buy or sell the underlying asset at the pre-agreed strike price on or before the expiration date.
Fees may vary depending on the Crypto Trading platform:
- Exchange: Each exchange may have different fee structures for options.
- Option Type: Call and put options may have different premiums
- Underlying Asset: Options on assets with higher volatility may have higher premiums
- Expiration Date: Options with shorter expiration dates may have lower premiums
- Trading Volume: Some exchanges may offer fee discounts for high-volume trading
Common fee structure:
- Transaction Fee: This is the fee charged for each Option Contract bought or sold.
- Maker/Taker Fees: Maker fees are charged to those who create liquidity by placing buy or sell orders that do not match existing orders. Taker fees are charged to those who take liquidity away by matching existing orders.
- Spread Fee: This is the difference between the buy price and sell price of an Option Contract.
- Overnight Fee: This is the fee charged for each night that the option buyer holds his position.
Features of Option Contract
Options contract are based on many different types of underlying assets on Crypto. They do not necessarily have to be standardized in terms of quantity, volume, value, or specific terms. Option Contracts are not listed and are only traded on the OTC (Over-the-Counter) market. Currently, the Vietnamese market only lists one type of derivative, which is the futures contract.
The exchange and settlement of assets in the Option Contract do not take place at the time of signing. Depending on the type of option, this can be done at the time of expiration or later. Participating in an Option Contract does not require a margin, instead, the participant is charged a Premium. The buyer of the option must pay a certain fee to the seller.
At the time of expiration, the buyer is not required to exercise the option. If the buyer exercises the option, the seller is subject to the terms of the Crypto contract. This includes selling the asset at the agreed price. If the buyer loses, the buyer only loses up to the premium paid.
To close a position in an Option Contract, the parties need to enter into another Option Contract with the opposite position. For example, to close a long option position, you need to sell a call option with the same underlying asset, expiration date, and strike price.
Analyze the advantages and disadvantages of executing Option Contract on the Crypto Trading platform
Below are some of the prominent advantages and disadvantages when executing Options contract on Crypto exchanges.
Outstanding Advantages of Trading Crypto Futures on Option Contracts
- High Leverage: Futures allow traders to use higher leverage. This helps to amplify potential profits with less initial capital on Crypto exchanges.
- Flexible Trading: Futures Contracts allow traders to open long or short positions. It offers the possibility to profit from both rising and falling trends of Crypto exchanges. Meanwhile, Option Contracts only provide profit when the price of the underlying asset moves in the direction predicted by the investor.
- Capital Efficiency: Futures contracts only require an initial margin. Instead of paying the full value of the contract on the Crypto exchange. This helps traders use their capital more efficiently to open more trading positions.
- High Liquidity: Futures markets are generally more liquid than Option Contract markets. This helps traders execute buy/sell orders without much difficulty on Crypto exchanges.
- Suitable for both short-term and long-term trading: Futures Contracts can be used for both short-term and long-term trading, depending on the trader’s strategy. However, Options Contracts are generally more suitable for short-term trading.
- Hedging: Futures Contracts are used to hedge against the risk of other investments. Traders buy Futures Contracts to protect their asset holdings from falling prices.
Disadvantages of Binary Options Indicator on Crypto Trading
Binary Options Indicator (BOI) is a popular trading support tool in the Crypto market. However, besides the advantages, BOI also has some potential disadvantages that need to be noted:
- Not Absolute Accuracy: BOI is based on algorithms and historical data, it cannot predict future market movements with 100% accuracy. Therefore, signals from BOI are for reference only, not guaranteeing profits for trading.
- Prone to manipulation: Crypto markets are volatile and susceptible to manipulation by investors. BOI is affected by these fluctuations, resulting in false signals, and causing losses to traders.
- High Risk: Binary options trading is high risk due to its all-or-nothing nature. Investors can lose their entire investment if their prediction is wrong.
- High Transaction Fees: The BOI trading platform usually charges high fees for each transaction on Crypto. It affects the investor’s profit when making transactions
- Knowledge and Experience Required: Understanding of Trade Crypto Futures , how BOI works and risk management skills are essential to use BOI effectively.
Which Market Should You Focus On When Trading Options contract on Crypto Trading Platform?
Here are 2 super prominent markets in choosing Options contract on the Crypto Trading exchange
Centralized Crypto Trading Market
The centralized market is transparent, and price information and data are clearly provided. Option Contracts in this market are specifically regulated in terms of scale, quantity, and quality of goods. Thanks to trading in the centralized market, Option Contracts have higher liquidity due to easy transfer between investors.
Decentralized Market on Options Contract
Option Contracts in the decentralized market do not involve any intermediary, only the buyer and seller participate. The flexibility of an Option Contract in this market is quite high, but because the information is not publicly listed, the liquidity here is also low. The number of transactions in the decentralized market accounts for only 2% of the total trading volume worldwide.
See more: Opening an Bybit exchange account for traders
In Vietnam, among the current derivative securities products, only futures contracts are listed on the stock exchange. The underlying assets of Option Contracts can include foreign exchange and foreign currency. Option Contract transactions in Vietnam are currently small and mainly take place on the market.
summary
Options contract are a potential trading tool with many benefits for traders on Crypto. However, traders need to be fully knowledge and skills to effectively use this tool on the Crypto exchange, while complying with strict risk management rules. Crypto Trading through the above sharing will help traders have more right choices. Don’t forget to click the follow button and update interesting news about this potential market!
FAQs
How to trade Option Contract in the market?
Option Contracts can be traded through stock exchanges or online financial trading platforms, where investors can buy and sell Option contracts with each other.
What are the main elements of an Option Contract?
The main elements of an Option Contract include strike price, expiration date, contract type (call option or put option), number of shares or underlying assets, and current market value of the underlying asset.
Future development trends of the options market?
The options market is expected to continue to grow with the increase in the diversification of tradable assets, the proliferation of electronic trading platforms, and the popularity of automated trading strategies and smart order placement.
