Derivatives Trading

Futures contracts are agreements between two parties to buy or sell an asset at a predetermined price and time in the future. They can be either cash settled, where cash is exchanged, or physically settled, where the underlying asset is exchanged. Futures derive their value from the underlying asset and serve as a form of derivative.

Unlike traditional futures, perpetuals are a type of futures derivative that does not have an expiry date and allow for continuous trading without the need for contract rollovers.

The following table provides a summary comparison between spot trading, futures contracts, and perpetuals:

Instrument	Can go short	Can hold position indefintiely	Can use leverage	Non-custody of underlying asset
Spot	No	No	Yes	No
Dated Futures	Yes	Yes	No	Yes
Perpetual Swaps	Yes	Yes	Yes	Yes

Futures offer several advantages, including:

1. Hedging and risk management

While spot trading involves the immediate buying or selling of assets at the current market price, futures contracts provide hedging and risk management opportunities, allowing participants to protect against price fluctuations.

1. Ability to bet on a rise or fall in price

Futures provide traders with the opportunity to engage in speculative trading by taking positions based on their expectations of the future direction of asset prices. Traders can choose to go long or short on futures contracts, allowing them to profit from both upward (long) and downward (short) price movements.

1. Multiplied gains with leverage

On Demex, traders can access futures contracts with leverage of up to 50x, allowing them to take larger positions with multiplied potential gains, although it comes with higher risk.

For the user guide on how to trade derivatives (dated futures/perpetuals) on Demex, click here.