Crypto derivatives derive their value from an underlying asset or index without necessarily transferring that asset. Perpetual futures have no fixed expiry and use funding payments to keep prices near spot markets; dated futures expire; options provide defined rights under specific terms. These products add leverage, liquidation, pricing, and counterparty risks beyond a simple spot purchase.
Risk checks before opening a position
- • Margin: Understand isolated or cross margin and maintenance requirements.
- • Liquidation: Review mark price, oracle, penalty, and insurance mechanisms.
- • Holding cost: Include funding, trading fees, spreads, and collateral risk.
Measure risk before choosing leverage
Leverage reduces the collateral required for a position but narrows the move that can be absorbed. Compare initial and maintenance margin, isolated versus cross margin, liquidation calculations, insurance funds, auto-deleveraging rules, and the treatment of unrealized profit. The displayed liquidation price can change with fees, funding, collateral value, and other positions.
Inspect price formation and liquidity
Check the index sources, mark-price method, oracle design, order-book or pool depth, spreads, and behavior during volatility. Market orders may execute far from the last price in thin markets. Funding is a recurring transfer between long and short positions, not a guaranteed yield, and can materially change holding cost.
Compare custody, fees, and access
Centralized venues hold collateral within an account; onchain protocols use smart contracts and wallet transactions. Review regional eligibility, collateral assets, settlement currency, maker and taker fees, funding, withdrawal costs, network fees, order types, and emergency controls. Derivatives can lose the entire posted collateral and may be unsuitable for users who do not understand liquidation.
Continue your research
For related checks, review trading tools and market analytics.