Redefining Trading Dynamics: Unpacking Web3 Derivatives vs. Spot

Coinlive is privileged to have been granted the opportunity to participate in this year's Invest Fair 2023, which took place at Suntec Convention Hall from 12 to 13 August in Singapore. As an integral part of the event, Coinlive not only assumed the role of moderating a panel discussion but also undertook the responsibility of providing coverage of the event's proceedings.

What is Invest Fair?

For over a decade, Singapore has hosted Invest Fair, a significant and eagerly anticipated finance-oriented event. This annual gathering serves as a pivotal platform for attendees to stay abreast of the latest market trends, enrich their financial acumen, and gain valuable market insights.

This year's Invest Fair, held over two days, marked a triumphant return to the physical event landscape. Under the theme "Growing Wealth with Confidence," the focus extended beyond the confines of traditional stocks and securities. The event aimed to guide participants on the journey of enhancing their financial prosperity while ensuring the stability and well-being of their financial landscape.

Distinguishing this year's Invest Fair was the expansion of its scope, encompassing not only stocks and securities but also delving into the domains of cryptocurrency, wealth management, property investments, and alternative financial avenues. The event was characterised by an engaging array of activities and challenges, interactive exhibition booths, and enlightening talks delivered by esteemed keynote speakers hailing from diverse sectors.

Web3 Derivatives: What Web3 Derivatives Mean and Why are People More Inclined Toward Derivatives than Spot

During the panel session that Coinlive moderated, Teo Jun Hao, Venture Investor in Web3 and Blockchain; and Steve Hong, CEO at Coinvestor, touched on the topic “Web3 Derivatives: What Web3 Derivatives Mean and Why are People More Inclined Toward Derivatives than Spot”.

A striking divergence between crypto trading and traditional financial markets lies in the around-the-clock nature of the crypto arena, according to Jun Hao. Unlike traditional finance where stock markets cease activity at the close of business hours while foreign exchange (FX) markets extend until the weekend break, the crypto landscape operates ceaselessly, operating every hour of every day.

It is a realm devoid of downtime, untouched by market closures, and devoid of human oversight — a perpetual flow of transactions. This presents the initial, distinctive divergence. To trading enthusiasts, this non-stop availability holds undeniable allure, offering an environment where opportunities are not bound by time constraints.

Steve concurred with Jun Hao about the 24-hour trading nature when it comes to crypto. Adding on, he mentioned that distinguishing the landscape of investing in the crypto consumer property market from traditional finance is a realm rich with disparities, rooted in the very systems and mechanisms of asset issuance.

Conventional markets operate with established intermediaries, mitigating challenges within the stock and bond domains. However, the blockchain and Web3 ecosystem brings forth a distinctive paradigm characterised by its infancy and radical attributes. This nascent stage is marked by inefficiencies, an abundance of untapped potential, and a myriad of unexplored avenues for profit.

As the blockchain space matures, it offers a frontier where opportunities for arbitrage and strategic trading remain plentiful. Moreover, the tokenisation of assets begets a diverse range of asset classes that, once listed on exchanges, emerge as unique investment prospects.

When considering the advantages of investing in the realm of cryptocurrency, two key aspects emerge as particularly impactful for investors. These facets, namely accessibility and diversity, hold significant promise for those seeking to engage in this dynamic space.

First and foremost, accessibility stands as a compelling proposition within the realm of cryptocurrency investment. An undercurrent of financial exclusion persists, with numerous individuals, particularly those marginalised or unbanked, facing hurdles in accessing traditional financial avenues. The ground-breaking potential of blockchain and crypto lies in its ability to democratise financial participation. It transcends geographical boundaries and traditional gatekeepers, empowering individuals to engage in financial activities independently, devoid of reliance on banks or financial intermediaries. This facet bears substantial significance, particularly in regions like Africa and various underdeveloped economies, where it can effectively pave the way for unprecedented financial inclusion.

Moreover, the attribute of diversity underpins the allure of crypto investments. With the advent of asset tokenisation, the investment landscape undergoes a transformation. The ability to tokenise diverse assets unlocks an array of investment opportunities, enabling individuals to diversify their portfolios with assets traditionally inaccessible through conventional means.

It is worth delineating two prominent categories of assets within the crypto domain: derivatives or futures, and their foundational counterpart, spot trading. Navigating these options requires a discerning approach. While derivatives can offer enticing advantages, including enhanced liquidity, leverage, and the potential for amplified returns, they come tethered to a web of complexities and risks.

For those new to this realm, it is pivotal to exercise caution as Steve continued to emphasise on the safety aspect. The allure of leverage can be enticing, yet it can also become a double-edged sword for the inexperienced. Engaging with derivatives demands a comprehensive understanding of their mechanisms, coupled with a rigorous study of the market dynamics.

It is essential to highlight that while derivatives can yield notable gains, they also carry commensurate risks. The intricate interplay of cost, liquidity, and leverage necessitates meticulous comprehension. A prudent route for many investors may involve entrusting their assets to seasoned professionals well-versed in the nuances of these trading instruments.

What Can the Inclination Toward Derivatives over Spot Trading Within the Realm of Crypto be Attributed to?

- Leverage and Amplified Returns: Derivatives often provide the option of trading with leverage, allowing traders to control larger positions with a smaller initial investment. This potential for amplified returns can be appealing to those seeking higher gains.

- Diverse Asset Exposure: Derivatives offer exposure to a broader range of assets beyond cryptocurrencies, including traditional financial instruments, commodities, and more. This diversification can attract traders looking to explore different markets.

- Risk Management and Hedging: Derivatives enable traders to implement sophisticated risk management strategies by using instruments like options and futures to hedge against adverse price movements in their existing portfolios.

- Speculative Opportunities: Derivatives markets provide opportunities for traders to speculate on the future price movement of assets without the need to own them physically. This speculative aspect can attract participants seeking short-term profit potential.

- Continuous Trading: Derivatives markets are often open 24/7, allowing traders to react to news and price movements around the clock as pointed out by Jun Hao. This constant availability can be advantageous for those who want to take advantage of global market shifts.

- Market Efficiency: Derivatives trading can contribute to more efficient price discovery and liquidity in the overall market due to continuous trading and increased participation from various players.

- Professional Traders: Derivatives markets can attract professional traders and institutional investors with expertise in complex financial instruments, contributing to a more competitive trading environment.

- Advanced Trading Strategies: Derivatives allow for the implementation of sophisticated trading strategies like options spreads, arbitrage, and algorithmic trading, catering to experienced traders looking for strategic advantages.

- Portfolio Diversification: For those already holding certain assets, derivatives can offer a way to diversify their portfolio and manage risk without needing to sell their existing holdings.

- Innovation and Novelty: The evolving nature of the crypto and derivatives markets constantly introduces new products and opportunities, attracting traders interested in exploring cutting-edge financial instruments.

Nonetheless, as what Steve pointed out, it is important to acknowledge that derivatives trading carries inherent risks due to leverage, complexity, and market volatility. Those considering derivatives should possess a strong understanding of the instruments, market dynamics, and risk management strategies. As the cryptocurrency ecosystem and derivatives market continue to evolve, regulatory developments and market maturity will also play significant roles in shaping the landscape.