Introduction to Derivatives Trading: Crypto, Forex, Commodities, Stocks, and More

Derivatives trading sounds intimidating for many people. But it’s not just for hedge fund managers or Wall Street pros. In fact, it’s one of the most flexible and powerful ways to trade especially when you want to speculate on price moves without owning the underlying asset. And thanks to margin trading, you can invest $10 and trade with $200. More risk, but also the potential for more gain.

Please note: This article does not constitute investment advice. Laws governing crypto, derivatives, and other forms of trading and investments as well as taxation vary by region and are subject to change. You are responsible for complying with the laws in your jurisdiction. Ouinex’s services and offers, including those mentioned in this article if any may vary by location and are subject to change. All investments carry risk.

Key Takeaways

• Derivatives are contracts that let you trade asset price movements without owning the asset
• Crypto perps and derivatives for Forex, commodities, and stocks are all available on Ouinex
• Derivatives let you profit in both rising and falling markets
• Ouinex offers leverage, transparency, and multi-asset access from one crypto-based wallet you can trade derivatives with your USDC

What Are Derivatives?

A derivative is a financial contract that derives its value from an underlying asset like Bitcoin, oil, a stock, or a currency pair.

With derivatives, you’re not buying the asset itself. You’re trading a contract that mirrors its price.

Why traders use them:

• Speculation: Profit from price moves up or down basically, you say you predict the price will go up, or the price will go down and if you’re right, you profit
• Leverage: Open larger positions with less capital (i.e. if you invest $10, the platform leverages that to $200 if it’s 20x)
• Hedging: Offset risk from other investments (read more about hedging here)

Going Short and Going Long

Going short means you predict the price of an asset will go down. 

Going long, means you predict the price of an asset going up. 

The good thing with derivatives? Even in a bear market, you can make a profit prices go down, and you still win when going short. 

CFDs

A CFD (Contract for Difference) is a type of derivative that lets you speculate on the price movement of an asset like stocks, commodities, indices, or cryptocurrencies without actually owning the asset itself.

When you trade a CFD, you agree to exchange the difference in the asset’s price between the time you open the contract and when you close it. If the price moves in your favor, you make a profit; if it moves against you, you incur a loss.

CFDs allow you to go long (buy) if you think prices will rise or go short (sell) if you expect prices to fall.

Example: Trading a CFD on a Stock

Let’s say you want to speculate on the price of Company XYZ’s stock, currently trading at $100 per share. You think the price will go up, so you enter a long CFD position for 10 shares.

• Opening price: $100 per share

• Number of shares: 10

• Total contract value: $1,000

A few days later, the stock price rises to $110 per share. You decide to close your CFD position.

• Closing price: $110 per share
• Difference per share: $110 - $100 = $10
• Total profit: $10 × 10 shares = $100

Because you didn’t actually own the stock, you never had to buy or sell shares you just settled the $100 difference with your broker.

With a 100x leveraged, you’d only need $10 for collateral. Just remember that if, in the example above, the market would have moved against you, you would have lost $100, not just $10.

Crypto Perps

Perps, short for perpetual contracts, are a special type of CFD commonly used in crypto and other markets.

Like regular CFDs, perps let you speculate on price movements without owning the underlying asset. The key difference is that perpetual contracts don’t have an expiry date you can hold the position as long as you want (provided you meet margin requirements).

How Does Derivatives Trading Work?

It’s simple:

1. Choose the asset you want to trade (crypto, FX, stocks, etc.)
2. Pick the direction (long or short)
3. Select your leverage (if any)
4. Monitor your margin and set stop-loss/take-profit levels
5. Open the trade

You can trade price movements in either direction even if the market’s crashing. That’s one of the biggest advantages of derivatives.

While trading derivatives is simple, to make a profit you have to learn the trading strategies you need to profit in different market conditions. Our simple introduction to trading strategies is a good place to start. Then, login and start using our free demo trading platform practice trading free of charge and figure out what investment strategies work for you (and which don’t!). 

You also have to follow the markets, which is why we offer in-app news and trading alerts so you can make your next move when the right trading conditions are met.

Types of Derivatives on Ouinex

We offer a wide range of derivatives from crypto to traditional finance so you can trade them all in one place. You can also use your USDC as margin for derivatives trading no need to first convert it to fiat. Plus, we offer up to 200x leverage for some assets. 

1. Crypto Perpetuals (Perps)

• Track the price of crypto assets like BTC, ETH, and others
• No expiry date hold as long as your margin supports it

2. Commodities

• Trade contracts that track assets like gold, silver, and oil

3. Forex Pairs

• Speculate on major currency pairs like EUR/USD, GBP/JPY, etc.

4. Stocks and Indices

• Get exposure to companies like Tesla, Apple, and indices like S&P 500 or NASDAQ

Why Trading Derivatives on a CLOB Exchange Isn’t Always a Good Idea

Unfortunately, derivatives have gained a bad name due to the practices of some trading platforms. 

Why? 

Because they decided to be the market maker on their own platform. 

When you go long on an asset, someone else needs to go short. That means you need market makers institutions that can provide liquidity. But if there isn’t lots of institutions, but rather one market maker and that market maker is the platform…

Well, let’s think about that for a while. 

When playing against a casino, who invariably wins? 

The casino. 

If you go long and the market maker goes short, they want you to lose. 

And on a CLOB model exchange, there’s ways and means of manipulating the market to trigger stop loss orders. 

Let’s say you went long on a stock at $10. The price goes up, you win. But if the price goes down, you’ve set your stop loss order at $0.90. If the market reaches that price, you automatically sell off the asset at a loss. 

On a CLOB exchange, the market maker(s) can see the order book. They can find where clusters of stop loss orders are set and push the market in that direction to trigger them. 

That’s why we offer a no-CLOB model where a) we aren’t the market maker b) market makers cannot see inside the order book. 

Plus, with us you can use USDC as margin when trading derivatives. If you’re already trading spot crypto with us and don’t want to first exchange your crypto to fiat…well, you don’t have to!

FAQs: Introduction to Derivatives Trading

Do I need to own the asset to trade a derivative?
No. Derivatives track the price of the asset you’re not buying the asset itself.

What’s a crypto perpetual (perp)?
A perp is a type of derivative that tracks a crypto asset and has no expiration date. You can hold it as long as you maintain margin.

Can I trade gold or Tesla with USDC?
Yes. On Ouinex, you can use USDC to trade derivatives for commodities, stocks, and more.

What are CFDs?
Contracts for Difference (CFDs) let you speculate on asset price changes without owning the underlying asset.

Is derivatives trading risky?
Yes especially when using leverage. Always manage your risk and use tools like stop-loss and take-profit orders.