Jun 03, · Bitcoin futures work the same way as any futures contract on a traditional financial asset. Investors can either go long on Bitcoin — expecting the price to increase — or short it, mitigating potential losses if they actually own some Bitcoin. Nov 16, · A futures contract is an agreement that obligates a trader to buy or sell an asset at a specific time, quantity and price. Bitcoin futures help to bring in additional liquidity to the market and also provide opportunities for arbitrage. As the trading value of Bitcoin varies, so too will the value of different Bitcoin futures contracts. 1 day ago · Bitcoin futures are sophisticated financial products. As such, it makes sense that I first explain how a futures trade itself actually works. As the name suggests, by buying or selling a futures contract you are looking to predict the future price of an asset.
How does the bitcoin futures workWhat Are Bitcoin Futures and How Do They Work? - Decrypt
Even though the concept of futures has been around for quite some time, the idea is relatively new in the crypto space. Bitcoin futures have just been introduced in and have become quite the talking point in a relatively short amount of time. In this article, we will look at how bitcoin futures work and the current state of this market.
Futures are financial instruments that allow investors to buy or sell an asset like Bitcoin on a future date for a predetermined price. When the time comes, , regardless of the current market price. The main aim here is for investors to reduce market risk as much as they possibly can.
A futures exchange or smart contract facilitates the transaction. This is beneficial for both parties because:. Another interesting way that investors can leverage a futures contract is via calculated speculation. In this case, the investors may hedge their bets with a futures contract. There are two significant advantages in CME futures trading:.
Bitcoin futures is an exciting way to benefit from the cryptocurrency market. There is no need for you to download wallets and handling scary-looking public addresses and private keys to reap the benefits of your trades. For investors looking to speculate on the price of Bitcoin without having to actually own any directly, Bitcoin futures provide a viable, regulated means to do so effectively. Further, futures can help hedge against risk against the volatile price fluctuations of Bitcoin.
Financial futures are contracts that specify the buying or selling of an underlying asset at a predetermined price on a precise date in the future. Counterparties are obligated to fulfill the terms of the contract upon expiration, either buying or selling the asset at the price once the contract expires.
Parties can take two positions in a futures contract; long or short. They are regularly used for two purposes:. In the first case, a party can purchase a futures contract on a commodity — such as oil — if they anticipate that the price of oil will rise leading up to the expiration date of the contract.
Futures are not limited to commodities, however. They can be used as a tool for the speculation on the price of financial assets as well. In the second case, futures contracts are used as a hedge against adverse price movements that would affect an entity that actively uses or produces the underlying asset in the contract.
In this way, a party can ensure more stable financial results from their business at the current price rather than suffering losses from adverse price movements. Futures contracts often lead to a less volatile price of the underlying asset in the long-term, especially if the futures market for the asset is highly liquid. Bitcoin futures are futures contracts that speculate on the price of Bitcoin without participants actually having to own Bitcoin.
Upcoming futures trading platforms like Bakkt offer physical delivery of the underlying asset for contracts, but it still remains within their custody rather than the purchasing party having to directly buy and sell Bitcoin on cryptocurrency exchanges and store it in their own wallet.
Entities that participate in Bitcoin futures are essentially making a bet on the price of Bitcoin over a specified period. Bitcoin futures work the same way as any futures contract on a traditional financial asset. Investors can either go long on Bitcoin — expecting the price to increase — or short it, mitigating potential losses if they actually own some Bitcoin.
Institutions are also more likely to offer Bitcoin futures trading to their clients since it is within a regulated exchange and reduces the risks associated with holding bitcoins. CBOE — one of the largest futures trading platforms in the world — launched the first Bitcoin futures in December , followed by another Chicago-based platform, CME.
Since then, several platforms and major institutions have signaled their plans to launch Bitcoin futures, including some cryptocurrency exchanges.