Decentralized Finance or DeFi eliminates intermediaries and can cater to users differently, like allowing loans. It is a broad term including many various applications and functionalities. Such applications avoid involving any central bank, regulatory body, or other individual and are totally decentralized and not controlled by any single unit.
Trading in the industry of cryptocurrency can be both thrilling and challenging. Traders should first gain a piece of tremendous knowledge and make quick decisions. They need to understand the types of cryptocurrencies to trade in, but they should also learn how the market runs and reacts to downtrends and uptrends.
Other than that, trading can be exceptionally challenging itself because of the several options that famous exchanges offer.
What are DeFi Index Futures?
Binance is a prevalent cryptocurrency exchange, and futures trading in it are large scenarios with multiple choices to trade. Since gradually more people have enter into the DeFi industry through Binance, the whole ecosystem has been nurture, providing new assets to deal with.
DeFi index futures are considered tradable presented on the Binance platform under the product line of USDT-margined perpetual futures. To get more clarification, it’s essential to understand what an index is?
An index is basically a tool used to track many assets or an individual asset’s performance. The dimension is taken for imitating the actions of a particular field of the marketplace. Therefore, the DeFi index is made for tracking the entire cryptocurrencies’ DeFi performance accessible on Binance.
Its worth estimated with a weighted average cost of its parts. These kinds of futures trades mull over variations that reveal the conditions of market volume and capitalization.
Some of the standard DeFi protocols calculated into DeFi index futures comprise 0x, Synthetic Network Token, Swipe, Maker, Kyber Network, Chainlink, Aave, Kava.io, Compound, and BAND Protocol.
Under extreme situations like a considerable drop in organic volume or a delisting, Binance makes modifications that recalculate the load of the market division. Also, Binance makes modifications whenever there is mapping, airdrop, or hard fork.
Benefits of Trading DeFi Index Futures
Similar to trading with non-conventional crypto derivatives such as multi-asset futures, USDT/BUSD-Margined Futures, and COIN-Margined Futures, there are distinct advantages intrinsic to the DeFi Index Futures as well. DeFi Index Futures provide a unique capital efficiency, plus they are also beneficial for some other reasons mention below –
1. Asset Allocation
Rather than investing in or holding an extensive portfolio plus using numerous contracts for covering different assets, you can share a sizeable amount of your portfolio into DeFi Index Futures.
As the index values, weighs, and measures over ten decentralized finance products, the segment becomes a more balanced, nuanced, and various asset.
You can balance risk by focusing the asset of your portfolio to capture the complete range of investment opportunities of Binance in the DeFi industry.
2. Performance Measurement
Decentralized Finance Index Futures provides you with new data for analysis. Because an index attempts to rebuild several pieces of the market industry, the performance of different assets has a further consequence on asset sharing. Rather than tracking the performance of just one crypto currency such as Bitcoin, where ambiguity in price action and higher volatility expected, the presentation of a synthesized index sector offers a less volatile experience. You also have a great time aiming investment mandates with decentralized finance index futures compared to other crypto trading options.
3. Diversification or Hedging
Dodging against risk with the use of a USDT DeFi perpetual agreement is more competent than other hedging alternatives.
When permanent investors with decentralize finance tokens use the index futures as a small hedge to reduce price volatility, they are frequently present local capital efficiency in these perpetual contracts.
You can also expand your investments by sharing your capital across the variety of DeFi tokens that the exchange offers. Investing funds in these weighted assets can be further efficient and affordable due to the sometimes better performance in the futures index.
4. Momentum and Short-term Trading
Because DeFi is a developing marketplace, DeFi Index Futures can show thrilling trading chances for long-term and short-term traders. Using DeFi Index Futures, you can follow short-term trends for reactive and flexible tactics, making these contracts exceptional for frequently changing market situations. Because of the accessible 50x leverage, you can exploit relatively short price movements. You can even earn revenues like any other type of derivatives trading.
How to Trade DeFi Index Futures?
You can begin to trade in DeFi Index Futures by initially locating a reliable exchange. It can support the DeFi projects you believe in and are comfortable with. Binance provides a DeFi Index product that supports approximately ten particular tasks varying and increasing in their own time.
Also, you can begin to trade this kind of asset without worrying about perpetual contracts. These funding rates deviate in rates between the perpetual and index contract markets or settlements because these contracts settled in dollars.
You can also start trading with DeFi Index Futures covering spreads. For instance, you can easily open a short position over a whole DeFi index; however, simultaneously can open a perpetual, long contract for a separate DeFi asset.
As long as you are using USDT for opening and settling your positions. You can trade the index plus the projects comprised in it together with each other.
This is amazing for you as a trader in the DeFi segment. If you anticipate one asset or project to perform worse or better compared to other index projects. The skill to evade against a portion of an index can eventually enable a perfect portfolio performance.
Similar to any form of trading, you should keep in mind all the basics. Though DeFi Index Futures can give more efficiency and stability to a trader. Due to coverage over a whole market sector, derivatives trading are still very dicey in any form. You should always consider the ratio of reward/risk in any futures trading asset before starting to trade.