Cryptocurrency derivatives are essentially affording crypto investors the possibility of expanding their investment methods. In a way that certainly was not possible even just a few years back. What exactly are cryptocurrency derivatives, though? In a technical sense they are smart contracts between two parties that more often than not are essentially betting against each other. The perfect example of this is a cryptocurrency futures contract.

Instead of doing Solana staking and putting your investment into a single sided liquidity pool you enter into a futures contract with another party in which you bet that the price of Solana will be higher at a set date. What actually happens is that both parties set a price and a date at which the contract has to be executed. In this scenario if you’re betting upwards then you’re going to want to set that price at a lower rate. That way when you execute the contract and buy the crypto currency you’ll be able to sell it off at a wider margin.

Using Crypto Derivatives In Risk Management

There are multiple reasons why crypto derivatives have essentially once again revolutionized the decentralized market. One of these reasons is the opportunity to use derivatives as a form of risk management just like they are used in the traditional banking system. Now, producers that sell their goods and get paid in cryptocurrency can bargain a set price for those goods through a smart contract. Visit https://www.goosefx.io/ to learn more.

That way what you’re doing as a producer is number one getting paid in crypto which makes world wide transactions easier. Number two, is essentially eliminating your risk of the currency fluctuating. There’s no question that one of the main concerns for producers of goods and services that get paid in crypto is the market’s volatility. Volatility isn’t as kind to farmers as it may be to day traders. In a sense, these crypto currency derivatives allow businesses to be conducted in a decentralized market with certain guarantees that you didn’t have beforehand.

Is This A Viable Way To Earn A Profit?

The financial instruments that are essentially available through cryptocurrency derivatives are the same ones that banks have been making a fortune on for years in the traditional market. With that in mind, it’s pretty clear that earning a profit through some of these contracts is certainly possible. There’s obviously a relatively high-risk level involved in many of these operations. As is the case with virtually any investment that you want to make.

At the end of the day, managing your risk is a key factor in any investment. You may decide that investing in a single sided liquidity pool or a similar option is a better deal for you. That’s ultimately a personal decision that each investor has to make. The big positive about all of this may very well be the fact that there are a ton of different options to choose from in the decentralized economy. Something that we didn’t have at least on a grand scale even a few years ago.