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Author Topic: How a derivative instrument works  (Read 45 times)
PercT4b (OP)
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September 15, 2021, 04:41:10 PM

Hope not to be OT, but I was asking myself about how the price of a derivative instrument could change if we don't consider the original price of the asset to which the derivative refers.

Are there other factors that could cause massive moves, independently by the price of the original asset (I mean like big manipulations etc...)?

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September 16, 2021, 06:20:45 AM

A derivative "derives" its price from the underlying asset. If the underlying asset moves, the derivative moves as well. It goes without saying that when the price of the asset rises due to reasons whatsoever, the derivative will also rise.

Hence your point, that is the price of the asset is being manipulated, the derivative will also get manipulated.

However I am not an expert on these instruments in the context of cryptocurrency, I am more of a spot trader so I cant go in depth on this. What I said is from my past experience on stocks and fiat markets. I assume the same applies to crypto markets too.


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September 16, 2021, 03:58:09 PM

The derivatives markets are always a hedge to mitigate the changes that occur in the underlying markets.
futures and options markets have worked on this, but sometimes they are attractive to those who do not want to invest in Bitcoin (for whatever reason) and want to take advantage of those volatility (that is the main feature)

Derivatives have different types such as options, regular fixed-term futures contracts, non-deliverable futures contracts and leverage, so the derivative does not necessarily represent or match the price of the asset.

When matching occurs it is not a derivative but rather tokenization of assets like USDT --> USD, WBTC ---> BTC,...etc
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September 17, 2021, 09:28:14 PM

By the way, sometimes the derivatives prices tend to differ from the spot market prices especially during the times of volatility, but the deviation is not usually so big because derivatives exchanges use the index price and mark price to liquidate positions plus traders can also choose to take profits and set  stop losses using the index or mark price to avoid cases of losses due to manipulations on the derivatives market

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