Profiting from derivatives need not be difficult and expensive. We explore the basics of derivative trading from how it works, why anyone can trade, how is it different from stock trading, and how you can make a steady profit from this.

The basics of derivative trading

The idea of derivative trading is simple. Its proponents shy away from pouring cash into assets like stocks, gold, currency, commodity, or livestock. Instead, they use derivatives as a means to speculate price movements of assets within a specific time. Derivatives are financial instruments that derive their value from existing asset classes.

Now, imagine a market where people like you and I have access to information and freedom trade as we like. With a bit of research, we can deduce the behaviour of the market and take our positions on the future of market prices in the coming days, hours, or even minutes – whether the market is bullish or bearish – with regards to the future price of assets. This is derivative trading.

Can anyone trade?

For the average man on the street, derivatives can offer lower-cost ways to trade in the market with limited downtime risk. With a small investment, derivatives can be bought or sold in two ways — over-the-counter (OTC) or on an innovative exchange like Level01.

OTC counter purchases tend to be risky. They lack reliable information. It is also a fact that OTC stocks are very thinly traded markets. This makes it very difficult to trade profitably.

In contrast, Level01 makes it easy for anyone to trade in a massive derivatives market without needing a bank account or fiat currency. With a credible reputation as the World’s 1st DeFi Platform with AI-Guided Derivatives Trading, it presents a very powerful and secure way for people like you and me to trade. In a nod to Level01’s performance, world-class news publishers ranging from Forbes to Business Inside have all given glowing reviews and insightful features on its potential.

How is it different from stock trading? 

There are a few key differences:

  1. Derivatives are different from equity shares. Shares are assets while derivatives get their value from the shares being held. The types of derivatives you would hear about include futures, options, warrants, and convertible bonds. For example, options on the stock of Virgin Galactic Holdings are directly influenced by the price of Virgin Galactic Holdings stock.
  2. There is an expiration date to derivatives like options or futures contracts. You can hold the stock of an active company for years, whereas options will expire. However, its short-lived function is better suited for speculators who want to capitalize on market trends and make quick profits based on price movements even within 15 – 30 minutes.
  3. Owning derivatives like options do not give the holder any share of the underlying asset. Rather, it gives the right to the holder to buy or sell the asset.

How can you make a steady profit from this?

You can trade derivatives as often as you like using small sums. Therefore, anyone can do it. There is only one rule; you must have a very strict exit strategy to avoid a large loss. Speculate on price movements within a short time frame with small amounts. The idea is to reap in as many small profits as possible. Be disciplined about it and you will see results.

Sometimes, this is better than waiting to get a big win on a trade (because it could also turn out to be a big loss). This way, you get to reduce the risk and earn small profits steadily.

Next, you must have the right tools – such as a live feed, capabilities to trade directly, knowledge, and the stamina to place many trades. A DeFi Platform with AI-Guided Derivatives Trading App like Level01 presents you with all the tools you need to excel in your trade. In fact, it’s easy to start because you’d just need to download the app.

Derivative trading is simply a vehicle to help you build financial freedom. If you understand how the derivative market works, you will have more confidence to try it. As Warren Buffet once famously said, “Risk comes from not knowing what you are doing”. Thus, be sure to take care of your own financial safety net first. Building a sizeable fund before you diversify your investment. Conduct your own study and then begin trading consistently using small sums. You will soon see your earnings grow. Derivatives are an excellent add-on to other forms of investments to grow your wealth.


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