Primarily, Bitcoin Futures function similar to stock or commodities futures. Simply put, a Future is a legal agreement to trade a commodity at a predetermined price and date. In this way, Futures allow investors to speculate on the future price of any given commodity. Consequently, Futures play a critical role in the financial sector. Dec 22, · Bitcoin futures and options on futures Hedge bitcoin exposure or harness its performance with futures and options on futures developed by the leading and largest derivatives marketplace. Now trading: Bitcoin options on futures. Bitcoin is a large portion of the growing digital asset market. BTC futures provide investors with transparency, price discovery and risk management capabilities. The contract will also allow individual market participants to access the bitcoin market .
What is futures market bitcoinIs There A Future in Bitcoin Futures? - Decrypt
Now, Bitcoin futures volume is widely considered to be one of the most accurate indicators of institutional interest in Bitcoin. Since many of these products are regulated, they allow firms to gain exposure to Bitcoin without— in most cases —needing to hold the underlying asset, while the capacity to trade on leverage allows these firms to closely manage their risk profile.
Bitcoin futures are a type of simple agreement contract to buy or sell Bitcoin at a specific price at a specific future date. They differ from a Bitcoin ETF , which is a commodity fund that tracks the price of Bitcoin as its underlying asset. Advocates of Bitcoin futures argue that their emergence leads to more efficient price discovery —since traders and investors can now short Bitcoin just as easily as going long.
However, in the years since they first launched, Bitcoin futures have been frequently scrutinized by industry experts—many of whom argue that some of the platforms offering Bitcoin futures products are not compliant with relevant regions, while some may be operating illegally.
The lack of regulatory oversight on some Bitcoin futures platforms has led to accusations of market manipulation. Matters came to a head in October , when BitMEX—once the most popular Bitcoin futures exchange by trading volume—was charged with operating an unregistered trading platform, among other things. Moreover, the United Kingdom's financial watchdog, the Financial Conduct Authority FCA recently announced a ban on certain types of cryptocurrency derivatives for retail customers, including futures and exchange-traded notes ETNs —signaling a potentially worrying trend among regulators.
Despite the first Bitcoin futures appearing as recently as , cryptocurrency derivatives are now by far the most popular way to trade Bitcoin. As per data from CryptoRank, Bitcoin futures now account for Though the vast majority of this trading volume is accounted for by institutional investors, the increasing accessibility and simplicity of futures products, as well as the growing range of available educational materials, have helped make Bitcoin futures accessible to casual investors.
However, a wide variety of alternative derivatives products have begun to emerge as of late, some of which may prove more attractive to both institutional and retail traders. One of these alternatives includes Bitcoin options—a type of derivative product that is similar to futures but enables more complex trading strategies. According to a recent report by crypto analytics platform Skew, Bitcoin options are rapidly catching up to Bitcoin futures in terms of trading volume and open interest, signaling rising interest among traders.
Primarily, Bitcoin Futures function similar to stock or commodities futures. Simply put, a Future is a legal agreement to trade a commodity at a predetermined price and date. In this way, Futures allow investors to speculate on the future price of any given commodity. Consequently, Futures play a critical role in the financial sector. For example, imagine a gold mining firm and how it might utilize futures to its benefit. The miner continues to unearth precious metals as inventors seek to secure their holdings at the current prices.
To buffer the risk involved in this investment, the miner may decide to agree to sell their precious metals at a predetermined price and date. In this way, they can ensure they receive their minimum required ROI. Reversely, an investor would seek to acquire a futures contract for less than what they predict the market value of gold will be at that time. Consequently, this maneuver provides more room for profits on the back end.
The scenario could occur where the price drops and the investor is stuck with a future that is over-priced. This is the situation that occurred shortly after the launch of Bitcoin Futures in late As the latter example shows, it takes an experienced investor to leverage futures properly.
Critically, you will need to have a firm understanding of the market cycles and fluctuations if you intend to make a profit trading futures. That being said, there are some undeniable benefits Bitcoin Futures introduce to the sector. In the case of Bitcoin Futures, the advantages are too great to ignore. For one, Bitcoin Futures trade on regulated exchanges. Importantly, these platforms receive regulation directly from the Commodity Futures Trading Commission.
Regulated exchanges are more secure than their crypto alternatives. In the past, investors incurred major losses after the collapse of unregulated crypto exchanges. In one now-infamous instance, the largest crypto exchange at the time, Mt. Gox, collapsed after a hack left the exchange in financial ruins. Sadly, the collapsed exchange cost investors millions. Worst of all, investors had no recourse because the platform was unregulated. Another major advantage of Bitcoin Futures is that they settle in cash.
This makes sense once you realize that no actual Bitcoin trading occurred. In fact, the investor and the exchange never own any Bitcoin during the transaction.
Rather, an agreement to trade Bitcoin in the future at a set price trades. Another advantage Bitcoin Futures bring to the market is the ability to short. Shorting is an investment strategy where an investor enters into a trade with the goal to profit from a drop in the market value of an underlying asset.
Because Futures pricing updates daily, investors can short futures by repurchasing their contract at a lower price. Keenly, you can continue to repurchase your futures contract at a lower and lower price as the market drops.