FTX - A Beginner's Guide to Trading Derivatives

RAMA38.MY.ID -Most FTX traders want to know if they can trade derivatives on FTX. After all, the Financial Trading Expo (FTX) allows you to trade stocks, options, indices and futures -- so why not also add derivatives? 

In this guide we’ll explain why derivatives aren’t yet available on RAMA38 FTX, but how that might change in the future. First, let’s start with some background...

What are derivatives?

A derivative is a financial instrument that derives its value from something else. The most common kind of derivative is an option. Options give the buyer the right, but not the obligation, to buy or sell an asset at a set price by a set date in the future. 

For example, if you buy a futures contract for gold on January 1 and prices go up by 10%, you get $10 worth of gold when it expires on December 31. 

If they go down by 5% instead, you'll only get $9.50 worth of gold (less the cost of carrying). RAMA38 FTX offers options on stocks, currencies, and indexes like SPX and DJI. 

With options contracts, holders can either exercise their rights immediately or wait until expiration day to see what happens with the underlying asset’s price before deciding whether to exercise their rights. 

There are also futures contracts where holders buy and then sell an asset on the specified date. In this case, if the holder has sold a contract for delivery on March 20th but prices rise between now and March 20th, then he or she has lost money because the price agreed upon was lower than market rates at that time. 

On the other hand, if the holder has bought a contract for delivery on February 20th and prices have risen since then, then he or she has made money because prices were higher than what was agreed upon. 

Finally, sellers need to make sure they have enough cash around to cover these positions should they need it! 

-Futures: To close out a futures position, the seller would simply find someone who wants to take his place and trade them back the same number of shares they had originally agreed to purchase. 

-Options: When traders want to exit their option positions, there are two main strategies available: early exercise and hedging. 

Early exercise occurs when a trader exercises their option rights immediately and pays the premium to acquire the underlying asset. 

Hedging involves selling an equal amount of an opposite type of security (e.g., buying call options while simultaneously selling put options).

Why do people use futures and options contracts?

Most people use futures and options contracts in order to hedge against the risk of price fluctuation in a particular market. The value of a futures contract is based on the price of an underlying asset, such as gold or oil. 

The buyer pays the seller at the end of an agreed-upon date for the difference between what he originally paid for the contract and what it is worth at that time. 

With an option contract, the buyer has the right but not the obligation to buy (or sell) something from (or to) someone else within a specified period of time. 

When you buy shares of stock, you are buying a small percentage ownership stake in that company. You have bought shares when you purchase stocks from companies like Apple and Microsoft. 

Sometimes, if you think the price of these stocks will go up, then you may want to invest more money into those companies by purchasing their stock on the open market. To do this, you can buy calls or puts with these stocks as your underlying assets. 

Calls give you the option to buy shares from a company at a certain set strike price during a specific amount of time while puts give you the option to sell shares from a company at a certain set strike price during a specific amount of time. 

If you believe that the price of these stocks will rise, then you would buy call options which would allow you to buy them at a cheaper price than they would be priced on the open market. 

If you believed that the prices of these stocks would fall, then instead you could sell put options which allow buyers to sell them at a higher cost than they would be priced on the open market. As always, there are risks associated with every financial decision made and losses can occur. 

There are many risks associated with trading derivatives such as unanticipated shifts in supply and demand, political instability, economic instability among others. That being said, traders who are well informed about the markets that they trade in usually fare better. 

RAMA38 FTX offers both futures and options trades where traders can participate in any market globally including things like commodities, currencies, equities and indices.

What’s the difference between a future contract and an option contract?

An option is a contract that gives the holder the right, but not the obligation, to buy or sell something at a specific price in the future. 

This can be done with stocks and commodities. When you buy an option, you are speculating on what you think will happen in the future. 

If you believe a stock’s value will go up, for example, then you would buy call options for that stock because it gives you the ability to purchase it later at today’s rate. 

The downside of buying an option is that if your prediction is wrong and the stock doesn’t move as much as you hoped, then all your investment goes down the drain. 

However, if your prediction is correct and the stock does go up more than you thought, then when it hits the strike price you bought into originally (called exercising), you make more money than expected. 

There are also put options which give holders the right to sell something at a particular price by a certain date in the future. 

These two types of contracts allow traders to speculate on how they think prices will change over time without risking their capital immediately like futures do. 

Futures are one-time investments where the trader has to predict how much a commodity, currency, or financial instrument will be worth on some agreed-upon day in the future. 

For instance, someone might invest $10,000 in gold one year from now if he thinks it will cost $1,200 per ounce when he cashes out. That way, if his prediction turns out to be true, then he'll have made a profit of $9,800 ($10,000 - $200). 

On the other hand, if his prediction is wrong and gold costs less than expected when he comes back to cash in his investment after a year (say it's only worth $900 instead), then the trade would have been unprofitable. 

The takeaway here is that both types of derivatives are risky: buyers have to guess whether the asset they're betting on will increase or decrease in price. 

The difference between futures and options lies solely in who has control over the risk: owners of options always maintain control while futures investors cannot force anyone to fulfill the terms of their contract.

How do you go about trading futures and options on FTX?

There are a few steps you'll need to take in order to get started. First, you'll need to create an account on the FTX website. The process is fairly straightforward and will require only a few minutes of your time. 

Next, you'll need some money in your account so that you can place trades. You can do this by either depositing money or funding your account with a wire transfer or credit card payment. 

Once you've deposited enough funds into your account, then head over to the Market tab from the navigation bar at the top of the page. From there, select Commodities and then select Oil. 

Scroll through the list until you find WTI Crude Oil Futures. Click the trade button on the right hand side next to it. 

A pop-up window should appear prompting you to enter how much you want to buy or sell as well as whether or not you want to set a limit price for it (usually 0). 

You may also want to enter how much margin (margin is something like collateral for these types of transactions) that you're willing to provide for these types of transactions if possible. 

When all that information has been entered, click OK and your order will be submitted! If you choose to use limits, then when the market hits your specified limit price, the trade will go through automatically without any additional input needed on your part. 

Otherwise, you'll have to manually close out each position if they happen to hit their corresponding stop-loss prices. 

It's important to note that futures contracts expire every month, which means you'll have to monitor them throughout the trading day. 

To close a futures contract, just simply press the close button on the left hand side of its listing under Closed Positions. With regards to options, you can also trade both puts and calls. 

Puts give the buyer the right but not obligation to sell a commodity at a certain price while call options give buyers the right but not obligation to buy a commodity at a certain price. Both of those come with limited risk because they are capped on both ends. 

In other words, if an option expires worthless, then it doesn't cost anything but if it expires in-the-money then that person would have made more than what was initially invested.

Tips & Tricks: Navigating & Understanding FTX Order Books

If you're not familiar with the different order books, here is a quick breakdown: 

- The Bid Order Book lists all buy orders currently available in the marketplace. These are purchasers willing to pay up for your position. When prices get too high, buy orders are said to walk away. 

- The Offer Order Book lists all sell orders currently available in the marketplace. These are sellers offering their positions at a price that buyers can afford. 

It’s not uncommon for a single trade to be executed between two of these offers because they represent opposing sides of the market. Similarly, it’s possible for traders to have bids or offers on one side of the book and sells or buys on the other side of the book, which is called hedging. 

For example, if someone has an offer to sell 100 shares of stock at $150 per share, but wants to own some stocks as well, they may enter a bid to buy 100 shares at $145 per share. 

As FTX is a derivatives exchange we will focus more on short-selling rather than traditional investing. Short-selling involves borrowing securities from someone else who owns them and then selling them in the hope of buying them back later at a lower price. 

If the price rises instead, investors must close out their position by purchasing securities (hopefully) at a lower cost. The term short refers to this strategy; long refers to holding securities purchased outright (or through margin). 

Unlike in long trading, when investors purchase securities hoping to increase in value, shorts want the value of the security to decrease. Shorting is a great way to hedge against rising values while also making money when prices fall. 

In addition, unlike other exchanges where fees are charged on both sides of the trade, FTX charges a fee only when the trader closes his position or goes long. 

Furthermore, there is no charge whatsoever to put a limit order up! That means you can always start off by entering a limit order for 10% below what the current price is, guaranteeing yourself a bargain in case something changes overnight. 

Finally, any trades that are unfulfilled within 5 minutes of being placed expire automatically and you don't lose any funds!