Digital currencies are the most talkable asset in the world of blockchain. So crypto trading is getting more familiar among the traders and investors. Like the stock market, the crypto market also has both ups and downs due to some economical and social reasons. But like the people getting attracted to stock market trading, crypto trading is also becoming more prominent in many major countries across the world. That’s why crypto assets are becoming the trending one in the trading platforms.
In recent years, the introduction of Defi and Blockchain-based Crypto trading has completely refurbished the whole crypto market. Traditional crypto exchange platforms have introduced cutting-edge trading options to promote the trading of digital currencies. Such as Crypto lending, asset tokenization, stablecoins, crypto derivative trading, and much more. Among these, the crypto derivative option is the recent trending feature in the marketplace.
This insisted many startups and entrepreneurs create a crypto exchange by enabling the crypto derivative trading options. So people approached the best cryptocurrency derivative exchange development service provider for launching an exchange with crypto derivatives trading options.
We understand that you are curious to know about crypto derivatives trading. So, let us begin this exciting article with…
What is Crypto Derivative Trading?
Before knowing about crypto derivative trading, you need to know about derivatives trading. In general, derivative trading is a contract that depends on another asset to have a value of its own. It will be conducted between two parties on the underlying assets. The common underlying assets are currencies, bonds, and commodities. But the derivative trading applies to both physical assets & digital assets. However, the value of derivatives can obtain value from any asset in existence. Derivatives can be used as speculative tools to make sure economic growth.
When it comes to crypto derivatives trading, it works the same as derivative trading. But the major difference is, here the trading will be happening in the crypto assets. Chicago Board Options Exchange (CBOE) and (CME) announced Crypto Derivatives trading options. After the introduction of this feature, many crypto exchanges enabled this option to increase their user base and attract global bitcoin and other crypto traders. Even popular exchanges like binance, okex, bybit, are having derivative crypto trading options for their users.
The Crypto derivatives trading feature is accepted between the admin and trader in the form of a contract on two factors. Either they can mitigate the risk in the future which is known as Hedging. Else the trader can predict the risk and mitigate them which is known as speculation. By starting an exchange with the Crypto derivative trading feature, owners can earn more additional profits. That’s why there is a great demand for Cryptocurrency derivative exchange development services.
Types of Crypto Derivatives Trading
Generally, crypto derivatives trading can be done in two possible methods. Such as the lock method and the Options method. In the lock method, it involves Futures contract trading, forward contracts, swaps, etc. whereas the options method involves optional contracts and other associated contracts. In the crypto space, the lock method is the most preferred type of crypto derivatives trading. So the futures contract, Forward contract, and swaps are the most preferred type in the trading ecosystem.
In the crypto industry, two types of contracts are mostly focused when it comes to crypto derivatives trading. Such as
- Futures contracts
- Perpetual contracts
Let us discuss them in detail…
A futures contract is a popular type of crypto derivatives trading. Here the trade is time-framed. This type of trading is done based on the future settlement price along with the date fixation. The date and the amount fixed cannot be modified or changed unless the trade is over. To make it more clear, let us see an example.
A and B are two crypto traders where B wants to participate in future contracts by trading bitcoins. B predicts that the price of bitcoin will increase in the future. So, B fixes the price of 1 bitcoin at $50k and fixes the settlement date. Now A wants to be involved and trade with B. This is known as a futures contract. A and B hereby fix the trade should happen on the settlement date at the predicted bitcoin price level.
If the price of the bitcoin rises above $50k on the settlement date, say $58k. Then B loses the profit by $8k. In case, if the price goes down at that time of selling, say $40k, then it is a profit for B. Besides, A can involve in any type of trade before the settlement date and it does not affect B. So in the futures contracts, users need to analyze the market and make correct predictions. So that they can earn a profit by futures trading.
In the crypto derivatives exchange, the perpetual contract is far similar to a futures contract. The major difference is perpetual contracts do not have any time limit for settlement. So this type of crypto derivative trading does not have an expiry of trade and can perform trade whenever the crypto reaches the predicted price limit. Currently, perpetual contracts are based on three functionalities. Such as Initial Margin, Maintenance Margin, and Insurance Fund.
The perpetual contracts work on two margin trading options. Such as the Initial Margin and the maintenance margin. For example, you buy 1 Ethereum worth $1k. If you want to increase the investment, then you need to leverage the amount to 9 times. So that you have 10 Ethereum coins for $10k. But here, your Initial investment of one Ethereum coin and $1k will be an initial margin.
The maintenance margin will be $9k and if the price of the Ethereum goes below $9k. Then you would automatically get a Margin call and it is known as a liquidation call. So there will be some options. You can either liquidate the collateral or you can invest further to maintain the margin. Else, you can call off the trade and get your profits.
In case, if the price of the asset goes beyond the collateral limit. Then he/she receives a negative balance. Here comes the Insurance fund to the rescue. The insurance fund helps to pay the debt amount to make the balance Zero. So that the trader can take out the funds from the perpetual contract. This is the working process of perpetual contracts in crypto derivatives trading exchange development.
Now, let us see…
Common Modes of Cryptocurrency Derivative Exchange Development
As per today’s crypto market, there are four common modes available in crypto derivative exchange development. They are
- One way mode
- Hedge mode
- Cross margin
- Isolated margin
Let us see the above-mentioned modes briefly…
One way mode
In one-way mode, the user can perform derivative trading in only one way either a long or short portion. That means if a user wants to make profits by using derivative trading, then only one type of order could be traded. In case, if the user wants to make another trade. Then the previous order would be closed and the present order will be only active for trading. For example, if you are trading a 10 ethereum and you need a new trade of 15 ethereum. Then the trade of 10 ethereum will be closed automatically and an extra 5 ethereum will be added to the trade. It is the working process of one-way mode in a crypto derivatives exchange.
Hedge mode is an alternative mode of one-way mode. In this mode, users can choose any number of positions irrespective of their position. Because here users can select either long or short positions. For instance, if the crypto market is bullish or bearish in a short time frame, then the traders or users who were holding long positions would sell off their trade on the expectation that the bearish would continue for a long time to safeguard from more losses. Besides, hedge mode is the most preferred mode for traders in the crypto derivatives exchange.
In general, to perform futures trading or perpetual trading, users must first go with margin trading. They must leverage funds from the admin to facilitate the order. If the user chooses cross margin and their predicted market goes wrong, then the initial amount deposited for margin trading will be started reducing. In this case, the user puts the trade on both futures and perpetual. Then both the initial amount will start reducing. Thus in the cross margin, both long & short positions would be sharing the position of the unrealized profit or loss.
In the isolated margin mode, users can manage the risk based on the isolated liquidation instead of the entire liquidation. For instance, when the funds in the maintenance margin are at the crossroads that it demands liquidation. Also, through an isolated margin mode, the user can manage to leverage an isolated margin amount to continue and maintain the crypto trading.
Desirable Features of Cryptocurrency Derivatives Exchange Development
Here is the list of outstanding features that you can get in the best crypto derivatives exchange development service.
- Margin trading
- Advanced Order Types
- Auto Deleveraging (ADL)
- Crypto payment gateway integration
- Mobile app for android and ios
- Stop Loss/Take Profit
- Partial Close Orders
- Insurance Funds
- Liquidity API
- Trading Engine
- Multi-cryptocurrency Wallet
- Robust Admin panel and more
By integrating all these features, you can develop a superfine crypto derivatives exchange platform.
Security Features of Crypto Derivative Exchange Development
In recent years, most crypto exchanges are attacked by anonymous hackers due to improper security systems. So the following tightened security systems will help to protect your crypto derivatives trading platform from hacks and other malware activities.
- HTTPs authentication
- Jail login
- Data encryption
- Two-factor authentication
- SQL injection prevention
- Anti Denial of Service(DoS)
- Cross-Site Request Forgery(CSRF) protection
- Server-Side Request Forgery(SSRF) protection
- Anti Distributed Denial of Service
By enabling these security modules, you can launch a secure crypto derivatives trading platform.
Benefits of Developing a Crypto Derivatives Exchange Platform
Currently, there are many hidden benefits to the owners by starting a cryptocurrency derivatives exchange business. They are
- As we can see the crypto derivatives exchange volumes are rapidly increasing. So as the exchange owner, you can collect more commission fees.
- By providing a crypto derivatives trading feature to your users, your exchange can easily reach greater heights in the competitive crypto marketplace.
- You will have a great opportunity for grabbing a huge pool of global crypto traders and investors.
- Faster processing due to smart contract integrations.
- Assured derivatives exchange platform with high liquidity and returns for crypto investors.
- Better exposure to crypto business markets.
- Best platform for steady investment business growth.
If you want to yield these benefits in your crypto exchange business. Then all you need to do is choose a professional and trust-worthy crypto derivative exchange development service provider. One such provider in the global crypto marketplace is Coinsclone.
Why Choose Coinsclone For Cryptocurrency Derivatives Exchange Development?
Coinsclone is a renowned white label crypto exchange software development company in the global crypto market. Being an early player in the crypto space, we excel in offering all sorts of cryptocurrency exchange solutions with utmost perfection. Coinsclone offers the error-free premium bitcoin exchange script software in which we will integrate crypto derivative trading options and robust security features to launch a secure crypto derivatives exchange platform. Our premier software is secure, fast, bug-free, and highly customizable. So you can add your desired features and themes as per your business needs.
If you want to launch a top-notch crypto derivative exchange at an affordable cost. Then connect with Coinsclone and kickstart your crypto derivative exchange business within a few days.