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Learn 3 essential data from derivative exchanges, which are more sensitive to price changes, and the method to adapt them on crypto investment.

CryptoQuant consolidates all major crypto exchanges and updates core data in real-time.

CryptoQuant offers comprehensive data for crypto trading: market data, on-chain data, short/long-term indicators for Bitcoin, Ethereum, Stablecoins, ERC20 tokens. 

CryptoQuant offers comprehensive data for crypto trading: market data, on-chain data, short/long-term indicators for Bitcoin, Ethereum, Stablecoins, ERC20 tokens.


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Learn 3 essential data from derivative exchanges, which are more sensitive to price changes, and the method to adapt them on crypto investment.

How to Use 3 Key Market Data:

1. Long/Short Liquidation

Prepare the price volatility by long/short liquidation

Long/Short liquidation refers to the investment assets belonged to exchanges from long/short position investors due to the stiff price change of cryptocurrency. The surge of long liquidation means a drop in cryptocurrency value, and the surge of short liquidations means the opposite.  

 Long/Short Liquidation: Prepare the price volatility by long/short liquidation
 Long/Short Liquidation: Prepare the price volatility by long/short liquidation

2. Funding Rate

Predict investors' sentiment by funding rate

Funding rate refers to the regular payment being delivered to a relatively small number of investors taking a position in either a long position or a short position compared to the larger number. Since there is a higher risk in taking positions against the majority sentiment, larger number position investors are paying smaller number position investors to maintain the positions. If the funding rate is above 0, it means more investors are predicting a bullish crypto market.

Funding Rate: Predict investors' sentiment by funding rate

Chart Description

Periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices.

Funding rates represent traders' sentiments in the perpetual swaps market and the amount is proportional to the number of contracts.

Positive funding rates indicate that long position traders are dominant and are willing to pay funding to short traders.

Negative funding rates indicate that short position traders are dominant and are willing to pay long traders.

CryptoQuant provides minute-based funding rates compared to exchange deciding every 8 hours.

3. Open Interest

Estimate resistance(Purchase orders in waiting) and support(Sell orders in waiting) line by open interest

Open interest is defined as the number of open positions, a non-closed deal for long/short, currently on derivative exchanges. An increase in open interest refers to the increase in the crypto market's volatility. Through open interest, crypto investors can speculate on price resistance(many selling orders are in waiting), and support(many buying orders are in waiting) levels.

Open Interest: Estimate resistance(Purchase orders in waiting) and support(Sell orders in waiting) line by open interest

Chart Description

Open Interest (OI) is defined as the number of open positions (including both long and short positions) currently on a derivative exchange's trading pairs.

As Open Interest (OI) increases, it indicates more liquidity, volatility, and attention are coming into the derivative market.

The increasing trend in OI could support the current ongoing price trend.

As Open Interest (OI) decreases, it indicates investors are closing futures positions.

In turn, this might trigger the possibility of long/short-squeeze caused by sudden price movement or vice versa.

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Bitcoin and Bitcoin Derivatives

What are Bitcoin & Crypto Derivatives

A derivative is simply a financial contract between two or more parties that derives (hence "derivatives") its value from an underlying asset, in this case, cryptocurrencies. More specifically, it is an agreement to buy or sell a particular asset – be it stocks or cryptocurrencies – at a predetermined price and a specified time in the future.

Derivatives do not have inherent or direct value by themselves; the value of a derivative contract is purely based on the expected future price movements of the underlying cryptocurrency.

The three main forms of derivatives are:

  • Swaps: a swap is an arrangement between 2 parties to exchange a series of cash flows in the future, usually based on interest-bearing instruments such as loans, bonds or notes as the underlying asset. The most common form of swaps are interest swaps, which involves the exchange of a future stream of fixed interest rate payments for a stream of floating rate payments between 2 different counter-parties.
  • Futures: a financial contract where a buyer has an obligation for a buyer to purchase an asset or a seller to sell an asset (such as commodities) at a fixed price and a predetermined future price.
  • Options: a financial contract where a buyer has the right (not an obligation) to purchase an asset or a seller to sell an asset at a pre-determined price by a specific timeline.

The most common cryptocurrency derivatives are bitcoin futures and options, due to the fact that the market capitalization of Bitcoin is more than 50% of the cryptocurrency market and it is the best-selling coin.

Reasons for trading derivatives

Derivatives are highly complex financial instruments that is used by advanced or technical investors. There are three main reasons for the use of derivatives, which include: 

  • Protection from volatility

The fundamental reason for the existence of derivatives is for individuals and corporations to reduce their risk exposure and protect themselves from any fluctuations in the price of the underlying asset.  

  • Hedging 

Investors could also use derivatives to protect their investment portfolio. This is also called "hedging", which entails taking measures to offset potential losses. Derivatives serve as a vital risk management technique for institutions and investors. The concept of hedging is similar to owning an insurance policy for your portfolio.

  • Speculation

Traders often utilize derivatives to speculate on the prices of cryptocurrencies, with the main objective of profiting from the changes in the price of the underlying cryptocurrency. For instance, a trader might attempt to profit from an anticipated drop in the general prices of cryptocurrencies by "shorting" the coin. Shorting – or short-selling – refers to the act of betting against the price of a security. Speculation is often viewed negatively since it adds a higher degree of volatility to the overall marketplace.

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Owning Bitcoin

The simplest way to get exposure to Bitcoin’s price is to own bitcoin directly. This means you own some portion of the actual 21 million bitcoin that will ever exist. Surprisingly, its not always immediately clear if you actually own bitcoin directly. An easy way to check if you have actual bitcoin is to see if you can transfer the currency. If you can send bitcoin, then you own bitcoin.Even when you own bitcoin, if your wallet is controlled by a third party such as an exchange, you are sacrificing some degree of autonomy over your bitcoin. In order to take full control of your bitcoin, you must send your bitcoin from your exchange account to a wallet you control. This transaction will be recorded on the Bitcoin blockchain, which serves as the ultimate authority on ownership of bitcoin.

Owning Bitcoin Derivatives: An alternative way to gain access to the Bitcoin price

An alternative way to gain exposure to Bitcoin’s price is by owning derivative, or synthetic, products. These derivative products change price based on the price of their underlying asset: Bitcoin.

However, there are several important differences between owning a Bitcoin derivative and owning real Bitcoin.

Since the derivative is not real Bitcoin, the owner will not be able to spend or transfer funds on the blockchain. Importantly, this means that the derivatives must remain in the control of the company that issued them. For many people, part of the appeal of Bitcoin is the autonomy from legacy financial institutions. This autonomy is lost with Bitcoin derivatives.

Additionally, derivative products have a greater degree of counterparty risk because they are tied to a specific company. If the company becomes insolvent or dishonest, your investment may be lost even if the price of Bitcoin indicates that they should be valuable. The company offering the derivatives is almost certainly hedging their position to limit their risk as the Bitcoin price fluctuates. However, this hedging may be imperfect, or the company could simply fail for other reasons.

Owning Bitcoin derivatives may not always carry the ability to redeem those derivatives for their worth in real bitcoin.

Benefits of Bitcoin Derivatives

Despite these drawbacks, Bitcoin derivatives do offer some compelling benefits. Some Bitcoin derivatives trade on stock exchanges, along with more traditional equities. This can be extremely beneficial for traders who are better positioned to interact with these markets than traditional Bitcoin markets. Additionally, many institutional investors have restrictions on where they can allocate their investments, and financial derivatives may be more accessible than direct ownership of bitcoin.

Derivative products can also give investors the ability to leverage or hedge their position in ways that are not possible with direct Bitcoin ownership. Derivatives with very high liquidity may be well suited for high-frequency traders looking to minimize slippage.

Which Method Is Right for You?

The answer to this question depends on the users' individual investment needs. If Bitcoin derivatives are the only option for an investor based on their restrictions, then they may be a good choice. A trader who intends to spend or transfer their funds will need to own actual bitcoin. An investment is a personal decision that individuals must make for themselves, but generally, the simplest way to get exposure to Bitcoin’s price is by owning bitcoin directly.

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Cryptocurrency Derivatives Exchanges

Some leading exchanges and cryptocurrency trading platforms offer trading in cryptocurrency derivatives, including bitcoin derivatives. There are platforms - derivative exchanges that specialize in trading crypto derivatives.

The crypto derivatives exchange is a market for trading financial instruments that derive their value from crypto assets. Derivatives are not assets themselves, but constructs that track asset prices. Derivative financial instruments are usually used to manage the risks associated with the ownership of assets, and are also used for speculation.

A crypto derivatives exchange can offer products that follow the price of Bitcoin (BTC), Ethereum (ETH), or a basket of altcoins. While some crypto exchanges offer dozens of derivatives, others specialize in futures and options.

Futures are binding agreements to buy or sell assets at a certain price at a certain time. Options represent the right, but not the obligation, to buy or sell.

Initially priced by market makers, crypto futures rise or fall in value based on supply and demand. These changes may track spot prices, the going rates for assets that are traded immediately.

The difference between futures and spot prices, which can be positive or negative, is referred to as the cost of carry or basis. Basis varies, but by a contract's expiration, it will always be zero.

Options are less risky than futures contracts. If John thinks Bitcoin is trending up, he could purchase a call option representing the right to buy BTC at a certain price. If the market cooperates, he can exercise the option and rake in the difference between his strike price and wherever the upswing takes him. If the market goes the other way, he'll lose his premium but not his bags.

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Some crypto exchanges, like BitMEX and Deribit, specialize in derivatives. Others, like OKEx and FTX, offer derivatives and spot trading. Unlike futures and options, spot trades are settled instantly.

A crypto derivatives exchange may be centralized or decentralized. To facilitate trading, centralized exchanges take custody of user keys, the series of characters that correspond to blockchain addresses and represent crypto ownership. This custodial role obliges centralized platforms to perform Know Your Customer compliance, a series of questions to establish user identity.

Decentralized derivatives exchanges like dYdX do not custody keys. Rather, users interact straight from their crypto wallets via smart contracts, scripts that automatically execute when programmed conditions are met.

Centralized exchanges are generally faster and cheaper, but decentralized exchanges let users retain control of their funds and identities. 

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TOP 5 Cryptocurrency Derivatives Exchanges

Binance Futures is a cryptocurrency trading platform founded in 2019 as a part of Binance. It was established for traders who like to speculate on Bitcoin and other popular altcoins like Bitcoin Cash, Ethereum, Litecoin, and Ripple values. Binance Futures benefits from Binance's reputation because it is a product of Binance, one of the most well-known and trustworthy cryptocurrency trading platforms in the world. It is the world's largest cryptocurrency exchange by trading volume daily and is available in over 180 countries with a global user base of over 15 million people.With the maximum cost of 0.04 percent on any deal, leverage up to 125x is also possible on Binance Future's platform. The traders' funds in Binance Futures accounts are kept separate from their regular trading accounts.
In this case, Tether (USDT) must be used as collateral to fund Bitcoin futures. The USDT-margin futures contract's limit order feature allows clients to specify a Take Profit (TP) and a Stop Loss (SL) to the order.
Except for a few new tools, such as those used to regulate leverage and examine open positions, the Binance Futures user experience is nearly identical to the Binance spot trading interface. Binance Futures also has what is called SAFU insurance to covers their clients' Futures wallets and funds.  

Launched in Jun 2016, Deribit describes itself as a futures and options trading platform for cryptocurrencies. Deribit is a centralized cryptocurrency exchange located in Netherlands. There are coins and 73 trading pairs on the exchange. Deribit has been created as an answer to those in search of a professional fully dedicated cryptocurrencies futures and options trading platform. A service that can create a fully liquid marketplace with the same standards as a traditional derivatives market. Deribit is open to traders in over 100 countries. It comes with no fee deposit and free withdrawal options up to certain amounts. And only allows for the buying and selling of Bitcoin futures and options. Supported trading coins: Bitcoin, Ethereum. Deribit has a lot of features. It offers dashboards for trading history, recent trades, and order books. It also has statistics for futures, index, volatility, and technical indicators. Deribit’s interface appeals to a newcomer and serves as a powerful tool for experienced traders.
Bybit is currently one of the top three crypto derivatives exchanges. Established in March 2018, Bybit is one of the fastest growing cryptocurrency derivatives exchanges, with more than 1.6 million registered users. One of the reasons for Bybit's popularity is its low fees. CEO Ben Zhou and his group have done an excellent job keeping the costs among the lowest in the cryptocurrency derivatives business. Bybit charges a taker fee of 0.075 percent and a refund of 0.025 percent to makers. Unlike other margin trading exchanges, Bybit has a simple design, but it has all the features that can allow traders to have a more advanced trading experience. Since its matching engine can handle 100,000 TPS, you did not have to worry about overload, and it has low latency (1ms). 
Derivatives products currently offered on the Bybit platform are inverse perpetual contracts (BTCUSD, ETHUSD, XRPUSD, EOSUSD), linear perpetual contracts (BTCUSDT, ETHUSDT, BCHLINK, LINKUSDT, LTCUSDT, XTZUSDT, ADAUSDT, DOTUSDT, UNIUSDT) and inverse futures contracts (BTCUSD quarterly). Trading in BTCUSDT is recommended for beginners.
In general, BTC, ETH, EOS, XRP, and USDT are among the five high-volume cryptocurrencies supported by ByBit for trading. An inverse contract indicates that if a trader wants to trade BTC/ETH/XRP/EOS, they must use the underlying cryptocurrency as the margin to trade the contract.
ByBit has a leverage of up to 100X. So if you open a position at $10 and leverage it 50 times, it will be possible for you to trade a contract worth $500. In this circumstance, 10 USD will be referred to as "initial margin".
ByBit provides trading in various ways. For instance, you can trade manually, with a grid bot, or with a service like Stackedinvest. However, one account may be insufficient to test many techniques, necessitating the use of the sub-accounts. As the profit and loss calculation held separately, clients can use different tactics and better track the performance of their trades.  

FTX is a Bitcoin & Crypto derivatives exchange that has quickly made a name for itself in the ever-growing cryptocurrency market. The exchange has received much positive feedback from the crypto trading participants, and it already has a lot of daily trading traffic.  
FTX offers products including industry-first derivatives, options, volatility products and leveraged tokens; buy and sell BTC, ETH, USDT, BNB and index futures with low fees and up to 101x leverage.
The team reportedly comes from Wall Street quant firms and tech companies including Jane Street, Optiver, Susquehanna, Facebook, and Google. 
The exchange offers regular spot trading and accepts fiat and cryptocurrency transactions, including Bitcoin, Ethereum, Litecoin, and various stablecoins. FTX seeks to serve retail and institutional traders, offering various goods and services geared toward more serious traders.
The platform also offers an over-the-counter (OTC) service for those looking to make large crypto purchases and a mobile app for those who want to keep track of their accounts on the go.
Over 20 notable cryptocurrencies, including BTC, ETH, BNB, and LINK, are available for perpetual futures on FTX. Index Futures are also listed on the exchange, allowing customers to trade various markets in a simpler manner. Large-cap coins (ALT-PERP), mid-cap coins (MID-PERP), and small-cap coins (SCAP-PERP) are among them (SHIT-PERP). By selecting the proper index, users can trade exchange tokens (EXCH-PERP), privacy tokens (PRIV-PERP), and regional baskets (DRGN-PERP).
The exchange also offers over 45 different leveraged tokens, making it very simple for users to obtain leverage. The BULL and BEAR tokens, for example, automatically monitor users' exposure and rebalance daily to maintain their goal leverage and avoid liquidations.
There are no costs on deposits or withdrawals when using FTX, and there are no costs on futures settlements. Trading over the counter (OTC) is likely free of charge because FTX has included the commission in the offer price.
The creation and redemption fees for leveraged tokens are 0.10 percent, while the daily management fees are 0.03 percent. So if you use 50x leverage, your trading fees will increase by 0.02 percent, and if you use 100x leverage, your trading costs will increase by 0.03 percent. 
Led by 8 former Morgan Stanley Executives, Phemex's goal is to build the worlds most trustworthy cryptocurrency derivatives trading platform. They offer perpetual contracts trading for Bitcoin, Ethereum, Ripple, and Chainlink with up to 100x leverage.There are 33 coins and 34 trading pairs on the exchange.

Crypto derivatives: conclusions

Crypto derivative is a recent addition to crypto trading that can increase or even multiply your profit if used correctly. It comes in many forms including futures, options, forwards, and perpetual contracts. Each has its own conditions and requirements to fulfill. As the crypto market keeps expanding, the use of derivatives becomes more significant as it is tied to the price fluctuations on the market.

The benefits of an established derivatives market go beyond the uses of an individual’s portfolio. It improves the underlying cryptocurrencies as a complete financial product that caters to demand from both retail and institutional investors. The fast-growing derivatives market will further expand the uses and acceptance of cryptocurrencies. And hopefully, challenge conventional financial products as the go-to venue for investors to grow their wealth over the long term.

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