What is options trading? Top options exchanges to trade on in 2023

When it comes to cryptocurrency trading, options are an excellent way for any investor or trader to make money. The practice of options trading was taken from the traditional financial market, where options allow investors to make money off the massive volatility of coin prices.

In this article, we’ll look into options trading as well as the best platforms to conduct this activity.

What is options trading?

An options contract is a financial agreement that gives the bearer the ability to buy or sell an asset at a predetermined price and at a given time.

These contracts work like futures, although they differ in the fact that investors have the option of exercising options or not. There is no obligation or coercion to fulfil the contract, so options are much more flexible than futures.

Options contracts have made their way into the crypto space, with digital assets being the underlying contracts. And with the crypto market being known for its massive volatility, options trading provides an impressive opportunity for investors to gain and make profits.

How options trading works

A crypto options contract offers several critical features - a strike price, a premium, and an expiry date.

The premium here is the cost of purchasing the contract. In terms of the strike price, it describes the price at which the contract buyer has the right to make an asset sale or purchase. Finally, you have the expiry date, which is the date of the contract’s settlement.

Options usually come in two types - American and European. American options can be exercised at just about any time - even before the expiry date. However, European options can be exercised on the expiry date alone.

It is also worth noting that options contract premiums are based on several underlying factors- including but not limited to the duration, the price of the cryptocurrency itself, and the expected volatility between start and expiry dates. Expected rates of return can also factor into this, so investors want to keep that in mind.

Best exchanges for crypto options trading

The crypto market is populated with several exchanges that allow investors to trade options pretty easily. However, the following are the best of the best: 

BIT

BIT.com was established as a full-featured cryptocurrency exchange designed for professional traders. In a short span of time, it has grown to become one of the leading derivatives exchanges for crypto market participants worldwide.

By combining enterprise-level security, product innovation, and fund efficiency, BIT's options trading service is among the most seamless and dependable in the market. The exchange has partnered with several top financial and crypto service companies, for instance, it has partnered with Paradigm to enable USD-margined options block trade functionality, offering institutional traders greater access to USD-margined options and improved liquidity. BIT also supports off-exchange settlement by partnering with Copper. This feature gives traders another layer of security and lowers the counterparty risk.

As of now, BIT remains one of the few exchanges that offer portfolio margin, providing traders with higher capital efficiency and access to options with lower margin requirements on hedged positions. Additionally, BIT offers a unified margin, which enables users to use all their portfolio as collateral when trading derivatives.

Binance

Binance’s inclusion in the list should come as no surprise. The exchange is the largest and most popular in the market, with well over 100 million customers and a presence in over 100 countries worldwide.

Many love Binance for its full suite of features. And for professional, sophisticated traders, this includes the exchange’s options trading suite. Binance provides optimal liquidity for options trading, ensuring that transactions move quickly and without stress. Essentially, traders won’t be stranded when they trade or place orders.

Access to over 150 cryptocurrencies means that investors will be able to pick their choice. Options traders will also be able to trade up to 125x leverage, meaning that there is a significant profitability opportunity here.

Beyond this, options traders on Binance get to enjoy access to a myriad of withdrawal and deposit options. So, they can move their money conveniently and without having to go through multiple hoops

Coinbase

If there’s any exchange that can challenge Binance in terms of volumes and popularity, it is Coinbase. The San Francisco-based exchange is pretty much the second-largest in the market, with over 100 million users as well.

Coinbase provides its Coinbase Pro service for sophisticated traders looking to access features like options. The trading service essentially takes traders into a professional environment where they will be able to trade and access the tools they need.

Another significant benefit of Coinbase comes from the fact that the exchange is a more regulated option for most investors. Coinbase is the only major crypto exchange whose stock trades on a major stock platform, and the exchange also operates under oversight from agencies like the Securities and Exchange Commission (SEC). For traders looking to play in a more regulated and structured environment, Coinbase is a solid choice.

Bitfinex

Bitfinex used to be the largest exchange in the market. While it might not necessarily be anymore, it remains one of the most storied and popular exchanges in the market.

Support for over 100 coins makes Bitfinex a solid option for traders looking to diversify their portfolios. The exchange also settles transactions in both fiat and crypto, although the exchange appears to have a rather lengthy identity verification process.

Bitfinex allows investors to deposit and withdraw funds via multiple channels. However, the exchange’s fee structure means that you might have to pay more for specific transactions. Nevertheless, options trading is a hit on this platform, with access to margins and an easy-to-use interface.

OKX

OKX is a reliable and popular exchange that works best for customers who don’t have rigid identity verification and geographical requirements. Essentially, users can start using OKX immediately - instead of waiting a while to get their identities checked.

Just as well, OKX allows its users to exchange hundreds of different coins - and access options denominated in these assets as well. It is worth noting, however, that all transactions are completed using tokens alone. Investors won’t be able to make withdrawals in fiat currency, but that shouldn’t be much of an issue.

Besides offering up to 100x leverage, OKX also provides a more flexible savings account - as well as low transaction fees. All in all, the exchange offers a healthy mix of convenience and security for traders.