The difference between AscendEX options and contracts

Both options and contracts on AscendEX provide leverage, allowing traders to control larger positions with a smaller amount of capital.

Nov 27, 2024 at 12:38 am

Understanding the Differences Between AscendEX Options and Contracts

AscendEX, a leading global cryptocurrency exchange, offers a range of trading instruments, including options and contracts. While both options and contracts provide traders with opportunities to speculate on the price of underlying assets, they possess distinct features and serve different purposes. This comprehensive guide will delve into the key differences between AscendEX options and contracts, empowering traders to make informed decisions when selecting the most appropriate instrument for their trading strategies.

1. Definition and Key Characteristics

Options:
Options are financial instruments that grant the holder the right, but not the obligation, to buy (in the case of call options) or sell (in the case of put options) an underlying asset at a specified price (the strike price) on or before a specified date (the expiration date).

Contracts:
Contracts, also known as perpetual contracts or perpetual futures, are financial instruments that represent an agreement between two parties to exchange an underlying asset at a specified price (the mark price) at a future date. Unlike options, contracts do not have an expiration date and can be held indefinitely.

2. Rights and Obligations

Options:

• Call Options: Give the holder the right to purchase the underlying asset at the strike price.
• Put Options: Give the holder the right to sell the underlying asset at the strike price.
• The option holder is not obligated to exercise their right to buy or sell.

Contracts:

• Contracts represent an obligation to exchange the underlying asset at the mark price.
• Both parties to the contract are obligated to fulfill the agreement.

3. Risk and Reward

Options:

• Limited Risk: The maximum loss for an option holder is the premium paid for the option.
• Unlimited Potential Reward: The potential reward for an option holder is theoretically unlimited, as the underlying asset's price can increase or decrease indefinitely.

Contracts:

• Unlimited Risk: The potential loss for a contract holder is unlimited, as the underlying asset's price can fluctuate in either direction.
• Limited Potential Reward: The potential reward for a contract holder is limited to the difference between the entry price and the exit price.

4. Leverage

Options:

• Options provide leverage, as the premium paid for an option typically represents a fraction of the underlying asset's value.

Contracts:

• Contracts also provide leverage, as traders can control a larger position size with a relatively small amount of capital.

5. Trading Strategies

Options:

• Options can be used for a variety of trading strategies, including:

  • Speculation: Betting on the price direction of the underlying asset.
  • Hedging: Reducing risk on existing positions.
  • Income Generation: Selling options premiums.

Contracts:

• Contracts are primarily used for:

  • Speculation: Betting on the price direction of the underlying asset.
  • Hedging: Managing risk on existing positions.