Cryptocurrencies vs. crypto derivatives


Cryptocurrencies trade on exchanges, which can be either spot or derivate markets. These are two different types of markets with different types of securities being traded on them.

On spot markets, traders buy and sell actual cryptocurrencies (i.e. assets). In contrast, on derivatives markets, traders buy and sell crypto derivatives (i.e. contracts).

Therefore, traders can obtain exposure to the same cryptocurrency and achieve the same financial result by trading in different types of securities - cryptocurrencies or crypto derivatives.

Yet, there are significant differences between cryptocurrencies and crypto derivatives.

In this article, we’d want to discuss the differences between these two types of financial assets and emphasize the advantages of each. Continue reading and you’ll figure out, which one is more suitable for active traders.


Cryptocurrencies are actual digital assets. To begin trading on a spot exchange, you must buy a particular amount of digital cryptocurrency. Then you deposit it into your trading account on that exchange and begin trading.

On spot exchanges, the crypto being traded is the actual digital cryptocurrency. When a spot transaction is performed, one currency is immediately exchanged for another. The corresponding information about the transaction is permanently stored in the cryptocurrency’s blockchain (the ledger of transactions).

Here are the pros and cons of trading in actual cryptos on spot exchanges:


  1. You physically own a particular amount of crypto in your crypto wallet.


  1. You must actually buy the digital currency to begin trading. That might be difficult.

  2. Spot markets are often less liquid than derivatives markets. Lower liquidity means lower trading volume, higher bid-ask spreads and lower profitability of each trade.

  3. Leverage on spot markets is absent or very low. The borrowing costs may be high.

  4. You cannot sell short on spot markets. This represents a major disadvantage of spot exchanges that is unacceptable to active traders.

Crypto derivatives

A derivative is a financial instrument that derives its performance from the performance of an underlying asset. Derivatives are not physical assets. They are created in the form of contracts that allow speculating in an asset’s price without owning the asset itself.

The most popular and actively traded crypto derivate is a perpetual Bitcoin futures contract.

A perpetual Bitcoin future is a derivative contract which price is equal to the price of Bitcoin (the underlying asset) and in which there is a daily settling of gains and losses and a credit guarantee by the exchange.

In short, by owning a perpetual Bitcoin future, you speculate in Bitcoin price without owning the Bitcoin itself.

The most important characteristics of the Bitcoin futures contract are high liquidity, ultra-low spreads, high leverage and the associated credit guarantee provided by the exchange.


The Mechanics Of Crypto derivatives

Derivatives involve two parties - the buyer and the seller, each of whom agrees to settle their obligations under the contract by an exchange of cash.

Therefore, crypto derivatives do not settle by delivery of the underlying asset, such as Bitcoin. Instead, traders agree to make a cash settlement in the future based on the price changes of the underlying crypto.

Importantly, transactions in crypto derivatives have the same financial effect as do transactions on spot markets. However, transactions with crypto-derivatives are more cost-effective and provide greater possibilities for speculators.


Pros And Cons Of Crypto derivatives

Here are the pros and cons of trading in crypto derivatives on futures exchanges:


  1. Crypto-derivatives provide the highest liquidity (the highest trading volume), compared to any other crypto market in the world. This leads to ultra-low spreads and fastest execution speed;

  2. Crypto-derivatives provide high leverage of up to 50:1. This means that the required margin to enter a trade is 1/50th of the trade size;

  3. Crypto-derivatives provide protection against the counter-party risk trough the exchange’s central clearing facility;

  4. With crypto-derivatives you can easily sell short. This single factor is extremely important for active traders.

  5. You do not have to physically own a particular amount of crypto in your crypto wallet to enter a trade on a derivatives market. Derivatives are created in the form of contracts that allow you to speculate in crypto’s price without owning the crypto itself.


  1. From a practical perspective, there are no disadvantages of derivatives.

As can be seen, trading in crypto-derivatives is much more advantageous than trading in digital crypto-currencies themselves.


Investors are far more willing to trade in crypto-derivatives, because they can more easily manage their risk, trade at a lower cost and with less capital, and go short more easily. This increased willingness to trade increases the number of traders, which makes the market more liquid. A very liquid market makes trading more profitable.

How Can I Start Speculating in Crypto-derivatives

To begin trading crypto-derivatives, such as a perpetual Bitcoin futures contract, you need to open a margin account.

Open an account at Monfex today and get access to the leading crypto-derivatives trading platform. It lets you trade the 5 most liquid cryptos, open long and short positions, and magnify potential gains with up to 50:1 leverage.