Derivatives

Derivatives are financial contracts between two parties that allow them to speculate on price fluctuations of a certain asset without buying it directly. They “derive” their value from an underlying cryptocurrency, hence the name. The most common types of derivatives include futures, perpetuals, options, and swaps.

For example, in futures contracts, parties can “bet” on whether the price of a certain cryptocurrency will go up or down in a specified period of time. Once the contract expires, one party profits from it and another incurs a loss, depending on whose prediction came true in the end.