TradingIntermediate#Advanced#Finance
Derivatives
D
Definition
Financial contracts set between two or more parties that derive their value from an underlying asset, group of assets, or benchmark.
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Concept Diagram
Key Takeaways
1
Derivatives let you trade price action of an asset without owning it directly
2
Perpetual futures (perps) are the most popular crypto derivative offering permanent leverage
3
Options give you the right but not obligation to buy or sell at a specific price for hedging
4
Derivatives amplify both gains and losses including the risk of full liquidation
Practical Example
You open a 5x long on BTC at $60,000 using perpetual futures on Hyperliquid - if BTC rises to $63,000 you earn 25% profit on your margin, but a 20% drop liquidates your entire position.
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Related Terms
Trading
Funding RatePeriodic payments between long and short traders in perpetual futures to keep contract prices close to index prices.
Trading
Short SqueezeA rapid price increase that forces short sellers to buy back their positions, further fueling the upward move.
Trading
Hedge (Cobertura)A position taken to offset potential losses in another investment, essentially acting as an insurance policy.
Trading
LiquidationThe forced closing of a leveraged position by an exchange when the user's collateral is no longer sufficient to cover the potential losses.
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