Derivatives
Financial contracts whose value comes from an underlying asset rather than from holding the asset itself.
A derivative draws its value from something else, the price of Bitcoin, Ether, or an index, without requiring you to own it. Futures and perpetual swaps are the main types in crypto, with options a smaller third. They let traders bet on direction or hedge a portfolio without owning the coin.
Derivatives volume far exceeds spot, so these markets often lead price rather than follow it. They cut both ways. The same leverage that magnifies a winning trade can trigger a liquidation cascade across the whole market when sentiment flips. Most of crypto's sharpest crashes start in the derivatives book.
Related terms
Contracts to buy or sell an asset at a set price on a future date, often traded with leverage.
Perpetual SwapA futures contract with no expiry date, kept aligned to spot price by recurring funding payments.
LeverageBorrowed money used to control a larger position than your own capital would allow, amplifying gains and losses.
LiquidationThe forced closing of a leveraged position when losses drop its collateral below the required minimum.