A contract or product is a derivative if its value is dependent on a base asset. It is similar to traditional trading, which includes a buyer and a seller. In derivative trading, Instead of exchanging the base asset as typical trading would suggest, the parties to this deal speculate on its price volatility, after which they agree to buy or sell it.

Any cryptocurrency token can be the base asset in crypto derivatives trading. A financial contract between two parties involves speculation on the price of the cryptocurrency in the future, based on which they mutually agree whether to buy or sell. 

As an illustration, consider a coin with the name ABC. Now, one individual thinks the price will decrease while the other thinks it will increase. You and the other speculator might write a contract speculating that if the price changes in any way, one of you will have to make up the difference in price for the other.

## Why are people exploring Derivative Crypto Trading?

Cryptocurrency brings a lot of uncertainty and volatility with it when it comes to trading. As a result, a lot of traders hesitate in obtaining and maintaining assets because they fear the mismanagement of their portfolios, heading toward losses. But derivative trading reduces the risk associated with cryptocurrencies' volatility. They work to lessen an investor's exposure to risk while also assisting them in safeguarding their asset portfolios against losses.

The derivative trading market has taken off because, with the help of cryptocurrency derivatives, market participants can avoid managing wallets and other complex market infrastructure by not holding the actual asset. And for new buy-side participants, dealing with regulated counterparties is a safer approach to gaining access to the asset class.

## Some types of Crypto Derivate Trading?

**Futures:** A futures contract is a binding contract between two parties that commits them to buy or sell an underlying asset at a given price and time in the near future. A licensed exchange is required to carry out a direct execution of such a contract. 

**Options:** This type of trading gives the trader an option but does not put him/her under the obligation to buy or sell the underlying asset at a specified price and future date.

**Perpetual Contracts:** Contracts with no expiration or settlement date are known as perpetual contracts. A trader may be able to hold onto a position indefinitely under certain conditions (such as when the account contains a specific amount of cryptocurrency, etc.).

## Conclusion
If you’re interested in the concept of derivative crypto trading, it would be advisable to read up on the market analysis before diving into it. Since anything related to crypto trading comes with a lot of uncertainty, thorough research is mandatory. 


Cryptocurrency brings a lot of uncertainty and volatility with it when it comes to trading. As a result, a lot of traders hesitate in obtaining and maintaining assets because they fear the mismanagement of their portfolios, heading toward losses.

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Derivative Trading in Crypto 

When the market prices hike unpredictably, a short squeeze occurs. A short squeeze is not a common phenomenon because it occurs beyond what the market analysis says. It causes a rise in stock prices unexpectedly, causing the short sellers to bail out. 

## How Does a Short Squeeze Occur?

A steep increase in stock price triggers a short squeeze. As prices increase, short-sellers try to leave their short holdings. It causes a decrease in the supply of the stock and an increase in their demand. It is a demand-supply concept that is easily understandable.

As a result, the market price keeps increasing. Usually, a short squeeze is unpredictable. But there are several ways to identify a short squeeze.

## How do you Identify a Short Squeeze?

Experienced traders know what indicators to look for when the buying pressure starts penetrating the market. These indicators usually indicate when a stock is ready for a short squeeze. The indicators are:

**1. Short Interest**
Short interest is the proportion of short sellers' shares in a stock's total shares. A short squeeze is more likely to happen if the proportion of total shares of the stock, being sold short is much more significant than the average level.

**2. Relative Strength Index (RSI)** - Relative Strength Index is an identifying point on a scale of 1-100. It indicates whether the market is overbought or oversold. 

Let’s understand with an example: 

A stock with a low RSI (30 or below) is oversold. It means it is being traded at a low price and is undervalued.
 
Similarly, a stock with a high RSI (31 and above) is severely overbought. It indicates that it is trading at a high price. 

## How to Avoid Getting Squeezed?

If you’re a long-term investor, a short squeeze will always benefit you. Investors gain profit when the stock price increases. As more short sellers bail the market, the price rises, increasing the gains for buyers. But if you’re a short-seller, you'll lose money when the squeeze pushes you to buy, which will increase the stock price.

One way to prevent yourself from a short squeeze is ‘Days to Cover’, also known as a short ratio is a measurement to compare the total amount of short interest in stock with its regular volume of trading. It measures the number of days required for regular trading to produce enough trading volume to buy back all the sold short trades. 

Experts say that ten days is a general guideline. Ten days or more to cover might indicate that trade is crowded, one you might want to steer clear of to avoid getting crushed.

Now that you’re a little more familiar with the concepts of a short squeeze, you must be curious to know more about the Gamestop Saga.

## What is the Gamestop Short Squeeze, and why are people talking about it?

Founded in 1984, Gamestop is a well-known retailer of video games and consumer electronics. The company had a roaring success in its early years but took a hit around 2010. The dip happened because of the evolution of the internet and the market’s inclination towards digital games. 

Last year in February, members of a Reddit group called WallStreetBets started a movement together to buy shares of the company in bulk. It happened after they discovered that a hedge fund (hedge funds are centred on risk hedging by concurrently purchasing and selling assets in a long-short equity strategy) was storing short positions in the stock. As a result, a short squeeze occurred, which caused the hedge fund to declare bankruptcy and suffer enormous losses.

## How did the Gamestop Short Squeeze affect the investors?

The GameStop short squeeze has been beneficial to small investors. But it affected the hedge fund managers who lost billions of dollars. It should be noted that it is unlikely for GameStock shares to stay at a high price. So, the retail investors will have to sell their shares as quickly as possible or else they’ll risk losing most of their investment.

## Can something like this also happen in India?

Something like this is unlikely to happen in India because there are several regulations in place legally to stop traders from influencing stock prices. India’s regulatory system is intact and strict in a way that doesn’t give a lot of leeway to investors to manipulate the market. 

If we were to compare, lending is possible in the US because the brokers keep their shares in a pooled account. It happens because brokers have the right to lend shares to traders in the US. But in India, brokers do not have permission to lend shares. The shares are maintained in the Demat account of the specific dealer.

## Closing Thoughts

If you’re a nascent investor, and new to the market, the idea of a short squeeze might seem thrilling. But it is essential to understand that a short squeeze is a short-term event, not a long-term plan. It is a fleeting occurrence, and one has to look beyond it to understand the bigger picture. Being a long-term investor is safer and more reliable. So, do not hurry into any decisions and invest smartly.



If you’re a nascent investor, and new to the market, the idea of a short squeeze might seem thrilling. But it is essential to understand that a short squeeze is a short-term event, not a long-term plan.

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A short squeeze is not a common phenomenon because it occurs beyond what the market analysis says. It causes a rise in stock prices unexpectedly, causing the short sellers to bail out.

Understanding Short Squeeze | aarnâ finance 

Understanding Short Squeeze


Since mid-2020, Decentralised Finance (DeFi) has picked up steam. DeFi has demonstrated that decentralising financial services at scale are viable, even though it is still in its initial days.

Algorithms and decentralised computer algorithms will dictate how value is created, exchanged, transmitted, and converted into financial products and derivatives in the not-too-distant future. As a newer technology, DeFi replaces old financial infrastructure and ushers in an age of ‘integrated value exchange,’ the financial industry, which has traditionally played this function, will evolve.

# **Understanding DeFi**

The term “decentralised finance” refers to Ethereum and blockchain-based applications. Because DeFi uses blockchain, many parties can keep a record of transactions. It means that no single source has control over anything. Instead, everything is decentralised. It is essential since traditional centralised systems can limit transaction speed, flexibility, and clarity, leaving users with less absolute authority over their assets.

DeFi differs from traditional banking in that it provides consumers with access to previously unavailable options. DeFi has expanded from a $1 billion sector in 2019 to a market worth more than $100 billion. Legacy financial institutions, in addition to crypto traders, recognize the significance of being ahead of this technology.

# **Is DeFi Unique?**

Accessibility is that one trait that can make anything go viral, therefore, DeFi has been blooming since the very start. Using blockchain technology at our disposal to transform the finance space has been a treat for all the people who are into finance.

Another notable benefit is the concept of composability, which allows anyone to integrate existing DeFi solutions to create a new one. The scalability of such a network, made up effectively of blocks of interlocking components, implies that long term financial inventions and requirements may be readily built on top of it and interconnected, all under the management of smart contracts.

# **How DeFi will Reshape the Future**

A variety of macro and technological developments have added to the rapid expansion of DeFi in recent years. DeFi is quickly evolving and expanding to parallel the traditional financial services ecosystem, whether through decentralised exchanges, lending and borrowing of multiple asset types, or insurance products. With so many traits like being built on a distributed ledger, DeFi applications can operate independently of a centralised operator with frequent administrations democratically, giving users choice over the application’s or protocol’s future.

This new type of decentralised financial technology may influence the progress of centralised financial institutions, with DeFi being regarded as a cheaper, faster, and more relevant alternative.

With a plethora of benefits for users, DeFi is set to revolutionise the finance industry. We are only 1% into the DeFi disruption, and for the time being, we are simply seeing the foundations of a new metropolis. However, DeFi isn’t a renovation. Our financial system is being completely reformed.

# **About aarnâ:**

aarnâ is an all in one platform that incorporates blockchain engineering, financial expertise, and data science to create crypto wealth. Avail insightful financial advice and deep insights driven by blockchain data, along with managing multiple CeXs, DeXs, numerous tokens and complex crypto products in one place with focus on optimization and enterprise-grade security and privacy.

Our journey started in 2022 in Delaware, USA with a passion for democratizing crypto prosperity by creating a seamless engine that amalgamates technology [blockchain engineering], people [financial expertise], and data [artificial intelligence]. We are determined to build a comprehensive asset management product that reduces asymmetric access to quality investments.

Stay Tuned and follow our Social Media Handles for regular updates!!

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Since mid-2020, Decentralised Finance (DeFi) has picked up steam. DeFi has demonstrated that decentralising financial services at scale are viable, even though it is still in its initial days.

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Will DeFi be the next big thing?

As companies use blockchain to drive greater transparency and precision across the digital information ecosystem, they’re amplifying awareness of the technology in sectors ranging from finance to infrastructure and even the entertainment sector. Here are the latest innovative ways in which companies are harnessing the power of blockchain technology in these three major domains.

## Financial services
Blockchain integration in finance has created the revolution of Decentralized Finance (DeFi). From a global perspective, banks serve as the critical storehouses and transfer hubs of value as digitized, secure, and tamper-proof ledgers, blockchains could fulfil the same responsibility, adding enhanced accuracy and information sharing into the financial services framework. JPMorgan Chase, the 200-year-old & world’s leading global financial services firm is facilitating to and fro real-time international payments with its clients through its JPM Coins. Other leading banks like Citigroup & Goldman Sachs are running trials with blockchain. It is a popular analysis that blockchain can rattle the $5 Trillion banking industry by disintermediating the basic services that banks provide, from payments to clearance and settlement systems.

Facilitating payments is highly profitable for banks. International B2B transactions alone are expected to reach a total value of $35T in 2022, according to Juniper Research, however, blockchain technology offers a secure and cheap way of sending payments that eliminates the need for verification from third parties and overpower processing times for traditional bank transfers.

Investing sector is also impacted by blockchain technology. We can see impact tokens integrated with smart contracts, incentivizing activities that support the UN’s Sustainable Development Goals. Disintermediation of capital formation is also adapted by the crowdfunding industry by giving pledgers the ability to directly fund creators.

Another finance sector absorbing the concepts of blockchain is mortgage/lending. Conventional banks/lenders provide loans based on credit reporting, however, blockchain provides a cheaper, more efficient, and more secure method to do the same for a broader pool of consumers, using a cryptographically secure, decentralized registry of historical payments; so consumers could apply for loans based on a global credit score. Moreover, the insurance industry is directing its blockchain applications on operational efficiency improvement. They are experimenting with blockchain to drive down costs, increase speed to market, and provide better customer experiences.

## Infrastructure & Energy
Since blockchain could serve as a public ledger for a massive number of devices enabling them to mediate communication between them autonomously, several companies are incorporating this technology to allow any device to securely connect, interact, and transact independently, along with managing software updates, bugs, or energy management.

Construction is another highly regulated industry that employs a wide variety of tradespeople to take on very complex projects. It is a difficult and time-consuming task to validate their identities, quality of work, and credibility. A blockchain-based framework could resolve these issues by making it easier for general contractors to cross-reference and track progress across multiple teams. While sourcing construction materials from credible places and ensuring their quality could be implemented using blockchain technology, the incorporation of smart contracts simply automates issuing timely payments linked to project milestones. The application of blockchain in real estate can help with recording, tracking, and transferring land titles, property deeds, liens, and more, ensuring the accuracy and verifiability of all documents.

Energy management has been the most centralized industry historically. In the US and UK, centralization of authority to allow someone to transact in energy lies in the hands of established power holding companies like Duke Energy or National Grid or with a reseller that buys from a big electricity company. Blockchain’s distributed ledgers could minimize (or eliminate) the need for such intermediaries, changing the traditional energy-exchange process. An open-source blockchain platform would enable utility companies’ customers to transact in ‘decentralized energy generation schemes’ to generate, buy, and sell energy to other people.

## Entertainment
Smart contracts of blockchain technology bring fairness in content sharing for creators, along with automatically disseminating the revenue on purchases of creative work according to predetermined licensing agreements. Moreover, the cost of video traffic by decentralizing video encoding, storage, and content distribution could dramatically reduce using blockchain disrupting Netflix, YouTube, and other players in the video distribution market.

In the world of gaming, blockchain enables gamers to attain a more even playing field for competing, getting rewarded, and exchanging digital assets, as digital tokens are securely exchanged for cryptocurrency without third-party investment. This model, termed Play-to-Earn, allows the gamers to use one perfected character or set of skills and items across digital worlds via blockchain’s distributed ledger, thereby quickly earning rewards and exchanging them through one decentralized source. NFTs and the Metaverse make the model more profitable to gamers. Axie Infinity, the NFT-based online video game, became very popular in 2021 as the players were not just earning tokens for in-game purchases, but also crypto exchange for real money. The game’s sales spiked from roughly $20K in Q1 2021 to a peak of $246.32M in Q4 2021.

There is also an urgent demand to reinvent social media networks as platforms where users are paid for the content they create, and they can also maintain anonymity. Blockchain technology and tokenization have also affected the art industry by giving a way to global access to the art market and reducing transaction costs.

As this new concept of blockchain technology grows, we will be looking forward to transformations in every sector of the global market. This technology has the potential to penetrate every barrier and establish a better structure for every sector.

As companies use blockchain to drive greater transparency and precision across the digital information ecosystem, they’re amplifying awareness of the technology in sectors ranging from finance to infrastructure and even the entertainment sector.

25 July 2022

2 min read

Why are people exploring Derivative Crypto Trading?

Some types of Crypto Derivate Trading?

Conclusion

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