Crypto trading futures and options trading often differ from each other. However, they both offer many benefits for you as a trader and account for growth in the trading market. Both options trading and crypto trading have their own benefits and risks but differ in their ways.
The most significant difference they have between each other is the amount of risk associated with them. However, trading is much more appealing with both crypto futures trading and trading options.
Well, don’t go anywhere because, in this article, we will discuss the significant differences between trading options and crypto trading.
How to Choose Between Crypto Trading Futures and Trading Options?
Futures and options are two popular derivative contracts. They are both connected with each other and derive their value from an underlying asset. Even though both of them look similar, they allow individuals to both buy and sell an asset and security later. However, there are still differences between them. So let’s find out what they are.
When you have a contract under options, the contract holder can sell and buy an underlying asset at a predetermined price. However, they aren’t obliged to do so.
Moreover, under a futures contract, everything differs, and the person, in this case, is obliged to buy or sell an underlying asset or security on a specific date and pre-agreed price.
In simple words, futures and options are pretty similar, but mostly in terms where the contractor has the right to deny the trade of an underlying asset.
Let’s take two examples from both trading and futures.
Let’s say Tony wants to buy Jack’s apartment for 1 Bitcoin (BTC) but isn’t 100% about it. Tony can set up an options contract with Jack, where he will have the right but isn’t obliged to buy Jack’s apartment for 1 BTC anytime in the next eight months. No matter what happens, the contract will expire after eight months, regardless of whether a trade is made.
With futures, the entire story changes. We’ll take the same scenario with Tony and Jack. If they make a futures contract that states after eight months, the payment of 1 BTC needs to be made, Tony will need to pay Jack 1 BTC whenever the contract ends. So, this means he doesn’t have the right but is obliged to do so.
Comparatively, both futures and options are excellent financial instruments that can be used to make money, but both have differences in between each other.
What Are the Types of Crypto Futures Contracts and Options?
Knowing the types of contracts between crypto futures and options allows you to understand better which one is for you. First of all, we have two product lines for crypto futures which are:
- Coin-Margined Futures Contracts: This type of contract supports both delivery and perpetual contracts, where participants can settle in quotes in many cryptocurrencies and allows you to quickly maximize profits.
- USD- Margined Futures Contracts: USD-pegged coins are a native currency used in settling contracts. This futures contract type supports perpetual and delivery contracts that leverage more than 100x. Participants can hold their positions without any expiry dates by supporting perpetual contracts.
On the other hand, we have options. What is the type of option? There are two:
- Put: You have the right to sell the underlying asset
- Call: you have the right to buy the underlying asset
Note: find out how to trade options in Canada
What Are the Benefits of Crypto Futures Contracts?
Above all, when you start crypto trading, you want it to be cost-effective. You never need to pay any premium prices before the contract is issued to you. In contrast, with options, you’ll need to pay a premium to the seller before the contract is issued.
Moreover, there are commissions you’ll need to pay based on regulations where the trade takes place.
Futures contracts can be executed only if they have a setup price and date within the contract. So in this case, time cannot affect the contract value since nobody is afraid to execute it at a bad time. The only time that is the wrong time is the expiration date. So, if the expiration date is after eight months, that’s the only thing that matters.
Controversy, trade options have to meet certain criteria to gain profits. Above all, the close the expiry date gets, the less valuable the trade will become! So, now you know that futures contracts aren’t really affected by time, but it highly influences trading options.
The futures market isn’t a newcomer but has been around for a long time and holds more quantity of the underlying asset. On the other hand, it isn’t the same case with trading options since their market is much smaller.
Since the futures market is a big one, bigger players in the market have turned to it and have converted it into a market that has lots of potential!
Because the futures market is larger than its counter partner, it makes it much more accessible and has a higher liquidity rate. But, controversial, the options market is less liquid and takes big traders more time to get established in.
Futures contracts are generally much more tax-friendly. As a result, a futures trader can enjoy tax benefits compared to an options trader. What does this mean? It means more profits after a tax cut in the futures market.
What Are the Benefits of Options?
Lower Risk Rates
Comparatively, options contracts are much less risky than futures. For example, let’s say Ethereum isn’t performing too well; a future buyer will need to purchase a predetermined price and date. The loss the buyer will undergo can’t be predicted.
However, if you have an options contract in the same scenario, the buyer can cancel the purchase. So, the most you can lose in an options contract is the premium you pay.
Freedom of Execution
Options contracts give the buyer rights but don’t oblige them to do anything. Buyers have the right to buy the underlying asset whenever they see it’s profitable. Comparatively, this isn’t the same story with futures contracts since you are obliged to purchase with a futures contract.
Its flexibility empowers a buyer that holds an options contract that the futures contract doesn’t offer.
Places of Trade
The options trade can take place anywhere between on and off the exchange. However, a crypto futures trade still enjoys lower regulations than a normal futures trade made under strict rules.
Crypto Futures vs. Options Trading: Which One Is the Right One for You?
We come down to the final answer. Is it going to be crypto futures or options trading? Both of them have seen a considerable amount of growth recently, and both of them are unique in their own way. However, while options possess less risk, futures are much more cost-effective in the long term. So, as a crypto trader, what you choose will primarily depend on your preferences and how much risk-averse you are.
Moreover, there are many other things to consider, such as how well you understand margin trading, leverage, and more. As a crypto trader, you must do extensive research before getting into the market and read more about trading terms, support, resistance, and more.
One last thing we can say is that if we really use a professional perspective, we can say that the future market has been around for a much longer time and is much less complex than the options market. On the other hand, the options market is built on complexity, where it receives most of its strength, which allows multiple methods of profit to be generated. In the end, whichever method looks most beneficial to you is the one you should go with!
Wrapping It Up
That’s all for this article. These are the differences between crypto futures and options trading. In the end, you’ll need to distinguish which one is the right choice for you. Are you someone who is into a riskier market and wants to be part of a larger market? Or you don’t like risk and want to be part of a more complicated and smaller market. The choice is up to you.
However, we recommend you carefully analyze the benefits and downsides of crypto futures and options to see which one is the best choice for your business. Then, you can decide if it’s for you or not. However, don’t start trading in any market until you’ve done enough research and you’re sure what you are doing.