Since a futures contract is an obligation to purchase an asset at a future date, it becomes no different than the spot asset when that future date arrives, so the price of the future necessarily converges to the spot price on the expiration date or else an arbitrage would exist. Futures contracts are said to be trading in contango (backwardation) when the price of the future is higher (lower) than spot.
Crypto Trading Scalping
Structured products are a broad category of investment products in traditional finance that package multiple financial instruments (e.g., equities, bonds, commodities, currencies, options, and/or other derivatives) into a single investment product that delivers a return stream linked to some underlying asset or basket of assets over a defined time horizon. Structured products come in many different flavors and serve various purposes, but common uses include generating yield, minimizing risk, or structuring payoffs that benefit from the fruition of a particular view or thesis. By adding, subtracting, or leveraging the return streams of various financial instruments, structured products enable highly bespoke payoff profiles catered to a specific set of risk and return objectives to be simplified into a single investment product; they essentially abstract away the complexity of managing the various underlying positions in exchange for a fee.
Still, the overwhelming majority of option volume on centralized venues is in BTC & ETH. More options are available via OTC desks like GSR or via decentralized protocols that rely on OTC desks as their counterparty. 12. Structured product volumes are difficult to disentangle as they are not a distinct derivative instrument but a combined package of assets, including derivatives. With that said, we can get a lower bound for decentralized structured products volume simply from Ribbon, and knowing that most crypto structured products are options-based products and represent a subset of CEX option volume, we estimate that centralized structured products volume must be a subset of (CEX options volume – decentralized structure products volume). Additionally, limited information about the volume of centralized structured products is available to our knowledge.
OTC derivatives provide increased flexibility on terms and allow users to customize components of their trade like the notional size, tenor, strike, and settlement. For example, a producer of a commodity, like an oil rig operator or a bitcoin miner, may be interested in hedging with average price options to align the pricing of the hedge with daily production. In order to trade OTC derivatives, investors contract with banks such as J.P. OTC markets also offer a wider suite of derivative instruments like variance swaps, average price options, and other exotic derivatives that can be advantageous for hedging specific exposures.
We begin with an overview of derivatives and their use in traditional finance before diving into the crypto derivatives ecosystem. Derivatives may reference various underlying assets like stocks, interest rates, commodities, currencies, crypto, and/or others. Familiar readers may skip the Derivatives 101 section. Derivatives are financial contracts between two or more parties that derive their value from the price of an underlying asset or index (“the underlying”). Derivatives date back thousands of years and are often used by commodity producers and consumers to hedge their revenues and expenses, respectively.