Before going further let me highlight the important things that you should understand in this article:
What are Binance Options?
How to trade Binance Options
What are the USPs of Binance Options products?
What is the difference between Binance Options and Binance Futures?
Hedging with Binance Options
What are Binance Options?
Options traders deal with different variables than those who trade on the futures and spot markets. Options trading can be intimidating at times, especially to newcomers. The seemingly complex mechanics and dense financial jargon surrounding these financial instruments make options trading out of reach for many retail investors. In addition to the knowledge of the technical aspects of trading, options traders must understand how certain variables affect options’ prices.
How To Trade Binance Options
1. Open a Binance account: You will need to create an account on Binance if you don't already have one by completing verification.
2. Deposit funds: Once your account is created, you will need to deposit funds into your account. You can do this by clicking on the "Deposit" button and selecting your preferred payment method or using Binance P2P easiest method to fund your Binance account. For Example in Tanzania put the Currency TZS, then select a Verified merchant with a yellow tick, and click on "Buy" as seen in the following image 👇
3. Navigate to the options trading platform: Once your account is funded, navigate to the options trading platform. You can do this by clicking on the "Options" tab in the top menu bar.
4. Choose an option: Select the option that you want to trade. You can choose from a variety of options, including Call and Put options.
5. Set your trade parameters: Set your trade parameters, including the expiration date, strike price, and the amount you want to trade.
6. Place your trade: Once you have set your trade parameters, click on the "Buy" or "Sell" button to place your trade.
7. Monitor your trade: After placing your trade, monitor it closely to see how it performs. You may want to set stop-loss orders or take-profit orders to limit your losses or lock in profits.
It's important to note that options trading can be risky, so it's important to do your research and understand the risks involved before trading.
What are the USPs of Binance Options products?
Low fees: Binance offers some of the lowest fees in the industry for options trading, making it an attractive option for traders.
Wide range of options: Binance offers a wide range of options, including European and American style options, as well as a variety of strike prices and expiration dates.
User-friendly platform: Binance's options trading platform is designed to be user-friendly, with intuitive navigation and clear instructions.
Advanced trading tools: Binance offers advanced trading tools such as stop-loss orders, take-profit orders, and margin trading to help traders manage their risks and maximize their profits.
High liquidity: Binance's options market has high liquidity, which means that traders can easily buy and sell options at competitive prices.
Security: Binance has a strong reputation for security, with robust security measures in place to protect users' funds and personal information.
In summary; Binance Options product offers a comprehensive and user-friendly options trading experience with low fees, advanced trading tools, and high liquidity.
What is the difference between Binance Options and Binance Futures
Binance Options is a derivative product that allows traders to buy or sell options contracts, which give them the right (but not the obligation) to buy or sell an underlying asset at a predetermined price and time. Options trading is a more flexible and customizable way of trading than futures, as it allows traders to choose their own strike prices and expiration dates.
On the other hand, Binance Futures is a derivative product that allows traders to buy or sell futures contracts, which are agreements to buy or sell an underlying asset at a predetermined price and time in the future. Futures trading is more standardized than options trading, as the contracts have set expiration dates and contract sizes.
Rights and obligations
One of the primary differences between the two instruments is their method of execution. An options buyer has the choice not to exercise the contract if the market moves against their position. In contrast, a futures contract holder must execute the contract at expiry, regardless of the market conditions.
Cost structures
Options buyers have to pay an upfront fee, i.e., the premium, to the seller upon purchase. A futures contract allows you to open a position without paying any upfront fee. Importantly, you will likely have to pay some commissions including trading fees and funding rates for crypto futures depending on the exchange.
Time decay
Time decay refers to the decline in the value of an options contract as it nears the date of expiration. The time decay accelerates as the expiration date of a contract draws closer as there's less time to realize a profit. In the case of futures, the passage of time doesn’t adversely affect the valuation of the contract.
Potential risks
Since options traders have the choice not to exercise their contracts, their loss is constricted to the premium they have to pay for the contract. Buyers benefit as the maximum loss is capped at the fixed premium irrespective of how much the underlying asset moves. In contrast, futures contracts carry liquidation risks as leveraged positions are prone to volatile price swings and may deplete a trader's initial investment with little to no effort. Forced liquidation may happen when your wallet balance is unable to meet the margin requirements of your open position. These contracts are riskier because there’s no way to evaluate how much you’ll make or lose, which makes it challenging to hedge your risks.
In summary, the main difference between Binance Options and Binance Futures is the type of derivative product they offer and the level of flexibility and customization they provide to traders.
Hedging with Binance Options
One of the advantages of Binance Options is that it can be used as a hedging tool. Hedging is a risk management strategy that involves taking a position in a financial instrument that is opposite to an existing position to reduce or eliminate the risk of losses.
For example, if a trader holds a long position in a cryptocurrency and is concerned about potential price drops, they can buy a put option on Binance Options. A put option gives the trader the right to sell the underlying asset at a predetermined price (strike price) at a future date (expiration date). If the price of the asset drops below the strike price, the trader can exercise the option and sell the asset at the higher strike price, thus limiting their losses.
Similarly, if a trader holds a short position in a cryptocurrency and is concerned about potential price increases, they can buy a call option on Binance Options. A call option gives the trader the right to buy the underlying asset at a predetermined price (strike price) at a future date (expiration date). If the price of the asset increases above the strike price, the trader can exercise the option and buy the asset at the lower strike price, thus limiting their losses.
The General Opinion; Binance Options can be a useful tool for traders who want to manage their risks and protect their investments in volatile markets.
The Article is just informing you what other products are available in Binance Exchange, therefore not financial advice do your own research.
Reference:
https://www.binance.com/en/blog/futures/binance-options-understanding-options-prices-421499824684900544
https://www.binance.com/en/blog/futures/crypto-futures-and-options-what-are-the-similarities-and-differences-421499824684902074
https://www.binance.com/en/blog/futures/how-to-hedge-a-long-position-with-a-protective-put-135066415356006112
https://www.binance.com/en/eoptions-data/BTCUSDT