Explained: Options vs. Perpetual Contracts vs. Futures Contracts

Key Takeaways:

• Bitcoin options, perpetual contracts and futures contracts are forms of derivatives trading that involve speculating on an asset's price.

• Perpetual swaps can be held indefinitely, without an expiration date, whereas an options contract usually comes with an expiration date. 

• Futures contracts usually come with a specified expiration date. 

Bitcoin Derivatives and Futures Trading

Bitcoin derivatives are financial contracts that derive their value from the underlying price of Bitcoin. These include Bitcoin futures and perpetual swaps. For example, Bybit Futures Contracts allow you to trade contracts with a specified expiration date, while Bybit Perpetual Swaps don’t expire, and can be held indefinitely.

In other words, derivatives enable traders to speculate on Bitcoin's price without owning the actual asset. They offer leverage, allowing traders to control larger positions with a smaller amount of capital. Due to leverage, derivatives carry higher risk and complexity. Thus, they’re more suitable for intermediate and advanced traders.

When to Trade Options

The beauty of options is that you can use them to profit under any market conditions. Whether you believe the underlying asset’s price will move up, down or even sideways, there’s an options strategy for you.

However, with options there’s more than just the price movement to consider. Rather than a straightforward bet on whether the price will go up, down or sideways, with options you need to ask yourself, “Will the price go up, down or sideways before the expiration date?”

Which Is Better for Beginners and Intermediate Traders?

For beginners: 

• Both options and perpetual contracts come with learning curves. They’re highly speculative trading vehicles for traders to maximize profits, based on market sentiment. 

For intermediate and advanced traders: 

• Options and perpetual contracts are catered more to intermediate or advanced traders, as they can utilize leverage to maximize their profits. 

• The volatility of Bitcoin’s price provides traders the opportunity for high-frequency trading so they can enhance their earnings within a short period of time. 

Summary

Options trading and perpetual swaps are highly speculative. Although traders don’t need to own the underlying asset, leverage can maximize both profits and losses. Trading responsibly is the key to accumulating wealth. 

Learn more:

• What Is Futures Trading in Crypto and How Does It Work?

• Futures vs. Options: Which One Suits You Best?