Imagine a regular stock market where you buy or sell shares of companies. A derivatives market is similar, but instead of trading the actual assets themselves, you trade contracts that are based on the value of those assets. In the world of cryptocurrency, these contracts could be based on things like Bitcoin or Ethereum.
There are different types of derivative contracts, but two common ones are futures contracts and options contracts. A futures contract is an agreement to buy or sell an asset at a specific price by a certain date in the future. An options contract gives you the right, but not the obligation, to buy or sell an asset at a certain price by a certain date.
Derivatives markets can be complex, but they allow investors to speculate on future price movements of cryptocurrencies, hedge other investments, or even magnify their gains (or losses).
