Position Exchange

Derivatives are financial instruments that derive their value from an underlying asset.Like other types of derivatives, including futures and options, perpetual swaps provide a means to speculate on the value of assets while the contract is held.This is similar to futures contracts which allow investors to speculate on a cryptocurrency’s future price in the future by taking on the obligation to buy or sell an asset on a set date at a predetermined price. Options, on the other hand, give its purchaser the right – but not the obligation – to buy or sell an underlying asset at a set price at a predetermined date.<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/2d1b0537a60e4930ab9ff8566252533a.jpg" />Generally, crypto <a href="https://www.cfainstitute.org/en/advocacy/issues/derivatives#sort&#61;%40pubbrowsedate%20descending" rel="noopener noreferrer nofollow">derivatives</a> offer traders a flexible method of profiting off the price movements of digital assets without exposing them to the security risks or technicalities associated with storing or holding cryptocurrencies.As a trader interested in betting on the price of crypto assets, you could either purchase an asset at an exchange or trade a derivative product anchored to the value of the digital asset. In the former, the process involves holding crypto assets. In other words, when you invest in a digital asset on an exchange, you have to take the instant delivery of the specified amount of the digital asset you buy and hold them until you decide to either sell it for a profit or loss. This is also known as spot trading.In contrast, trading crypto derivatives do not come with any custody requirements for the investor. Instead of holding the asset directly, derivatives traders simply buy and sell digital contracts.<h2 id="header-0">What Are Futures Contracts?</h2><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/1cecd2c9cb3844dcad60eb79f4f1aeea.png" />As its name implies, a futures contract is basically a financial contract between two parties to sell and buy an asset at a set price in the future. In other words, future contracts allow two parties to agree on the price at which they will exchange an asset in the future. Although the duration of future contracts varies, the settlement dates of each contract are always fixed. In essence, before two parties can enter into a crypto futures contract, they must agree on closing the contract on a predefined settlement date.For instance, the expiration of a quarterly Bitcoin futures contract is three months from the day it is issued.<h2 id="header-1">How Do Crypto Futures Contracts Work?</h2><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/b11acfaf803f4c5dae5a9ae0d61d951a.jpg" />To illustrate the core workings of <a href="https://www.investopedia.com/terms/f/futurescontract.asp" rel="noopener noreferrer nofollow">futures contracts</a>, let’s assume that the price of POSI is $4 and Alice, a crypto derivatives trader, believes that the price will be higher in a month.She could bet on this possibility by entering into a deal that allows her to purchase 1 POSI for $4 a month from now. All she needs to do is open POSI futures contracts that collectively indicate her commitment to pay $4 for 1 POSI next month, regardless of the price at which the digital asset is trading on the spot market.On the flip side of this trade is Bob, who believes the price of POSI will drop below $4 at the proposed settlement date. He is committed to selling $4 worth of contracts to Alice next month. In other words, Alice is “longing” POSI, while Bob, on the other hand, is “shorting” the digital asset.Assuming the price of POSI rose to $4,5 at the expiration date of the contract, Alice would have generated a $0,5 profit since she would be purchasing POSI from Bob at a discount. In a scenario where the price of POSI dropped below the $4 mark at the settlement date, Alice would have to buy POSI from Bob at a higher price compared to the current market and subsequently incur a loss.<h2 id="header-2">What Are Perpetual Swaps?</h2>A perpetual swap is somewhat similar to a futures contract in that it allows traders to speculate on the future price movements of cryptocurrencies. The core difference is that, unlike a typical futures contract, perpetual swaps do not have expiration dates. In essence, this eliminates the need to constantly re-establish a long or short position. For this reason, the price of perpetual contracts must be anchored to the spot prices of their underlying assets. In the case of futures, there is no need for maintaining a price peg since the value of the contract and the underlying asset automatically converge as the expiration date nears.<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/909ef703d1324b27b47c9340005130dd.jpg" />Due to the absence of expiration dates in perpetual swaps, exchanges implement a price anchoring system called the funding rate mechanism. This mechanism balances the short and long positions of perpetual swaps by either incentivizing or disincentivizing trades. Think of it as a rebate or fee that helps balance out the demand for the short and long side of perpetual contracts.<h2 id="header-3">Position Exchange - Perputual Decentralized Trading Protocol 2.0</h2><h3 id="strong-purposes-of-creating-dptp-2-0-strong">Purposes of creating DPTP 2.0</h3>Primarily, the project targeted creating a futures trading version 2 product with smoother orderbook processing capability and lower operating costs.Since blockchains’ designs and protocols are greatly different and the capabilities offered by their networks often exist in isolation, it is difficult for users in DeFi to move assets from one blockchain to another.The birth of DPTP 2.0 will eliminate the problem of interoperability as it allows users to participate in transactions with multiple blockchains through Futures Bridge while enhancing user experience with lower slippage, lower cost, and greater transaction volume compared to the existing version.Moreover, Position Exchange offers DPTP version 2 with improved functions to support users at our best like a Centralized Exchange (CEX) platform. After all, why do you even believe in CEX now? DEX is the future and POSI&#39;s DPTP 2.0 will reign. <img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/13a521c0935c4057850c5aa5272405ff.png" /><h3 id="strong-dptp-2-0-features-strong">DPTP 2.0 Features</h3>There are some benefits that DPTP 2.0 brings about:<ul><li>Lower gas fee.</li><li>Lower operating costs.</li><li>Creating a futures exchange that enables users to profit quickly and leverage their investment for greater gains.</li><li>Constructing an on-chain public exchange that is transparent and allows users to check all of their transactions.</li><li>Granting users the ability to place orders directly from their DeFi wallets. You have complete control of your own money.</li></ul><a href="https://testnet.position.exchange/" rel="noopener noreferrer nofollow">Position Exchange DPTP 2.0 Testnet</a> has been launched recently. Access to experience and catch multiple awaiting attractive rewards in Incentivized Testnet program.For further details, join our Discord and fill in the form now: https://discord.com/invite/position-exchange

Understand Crypto Derivatives - CEX and DEX

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PositionExchange

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