Having obtained a diploma in Intercultural Communication, Julia continued her studies taking a Master’s degree in Economics and Management. Becoming captured by innovative technologies, Julia turned passionate about exploring emerging techs believing in their ability to transform all spheres of our life.
Bitcoin futures have become a popular tool for earning money among investors. But what is so special about them?
We all know stories of how someone bought a cryptocurrency and then lost everything. It happens not because of a leap in course, but because of the unreliability of cryptocurrency exchanges. Therefore, Bitcoin futures, which public exchanges launched not so long ago, have become a popular tool for earning money among investors. In this article, let’s go deep into Bitcoin futures, define their peculiarities and find their alternatives.
The future is a forward contract for buying or selling an asset in the future at a certain price. After concluding the contract, the parties are obliged to fulfill their conditions when the futures contract expires regardless of the market price.
You can open long and short positions using futures. In the first case, a trader agrees to buy the asset at a certain price in the future, in the second – to sell this asset on the day of the contract expiring.
What Are They Developed for?
These derivatives (derivative financial instruments) are used most often to get speculative profit. With futures, the trader can open both long and short positions using the leverage effect.
However, initially, futures were invented as a tool to hedge price risks. Thus, through futures, it is also possible to reduce the risks of price fluctuations on various assets.
For example, the main risk for bitcoin miners is the fall in the cryptocurrency cost to the level at which its mining becomes unprofitable. That is, the cost of electricity exceeds the income from the mined coins. To secure your business, a miner can sell futures on the number of available bitcoins. If the cryptocurrency exchange rate drops significantly, then the futures will provide an opportunity to offset losses from lowering the price of an asset by making a profit from a short transaction.
Bitcoin Futures Specifics
There are a lot of kinds of futures: securities, stock indices, commodities, as well as for cryptocurrencies futures. In general, Bitcoin futures are not much different from other derivatives contracts. They also allow you to bet on price rising or falling in the future.
Bitcoin futures are tied to the cost of Bitcoin. In other words, investors can bet on its further growth or decrease. Besides, futures allow traders to speculate on the cost of Bitcoin without owning a cryptocurrency.
Bitcoin and other crypto-assets are still unregulated, but cryptocurrency futures are traded on the regulated exchanges. So, those who worry about risks associated with the unregulated decentralized crypto-assets can easily trade Bitcoin futures and speculate on its cost.
How do Bitcoin Futures Work?
The principle of Bitcoin futures operation is the same as ordinary futures on usual to us financial exchanges.
Predicting an increase or decrease in the Bitcoin price, investors can choose the long or short position of the Bitcoin futures.
For example, let’s suppose a trader owns 1 BTC worth $19,000. He suggests that in the future, its price will fall. To protect himself, and not to lose investments, he can sell Bitcoin futures at the current rate of $19,000.
Let’s say the price of Bitcoin has fallen and is already $15,000, respectively, the cost of Bitcoin futures contract has also fallen. An investor can buy back Bitcoin futures. In such a situation, he has won $4,000 and has defended his investments by selling at a higher price and buying at a lower.
Where to Trade
Note that you can trade derivatives contracts on BTC without possessing the cryptocurrency itself, but only speculating on its price. It is exactly how, in particular, transactions are executed on such well-known exchanges as CME and CBOE, oriented mainly to large investors.
In addition to the CME and CBOE platforms, which are strictly regulated by American laws, Bitcoin futures are also presented on platforms such as BitMEX, OKEx, Crypto Facilities, etc.
Such exchanges have much less stringent KYC procedures and AML policy requirements. Also, on such platforms, the threshold for entry is much lower, which means that they are available not only for large investors. By the way, on these exchanges, you can trade with large leverage.
By the way, did you know that in addition to futures, some exchanges offer to speculate using perpetual cryptocurrency contracts? So, for example, the Monfex platform offers customers trading with the help of such contracts for 12 cryptocurrencies. The advantage of such contracts over futures is that they do not know how to expire and offer the use of high leverage.
The Bakkt Platform
Recently, another exchange offering investors Bitcoin futures, Bakkt, has begun to operate. This platform is the first of its kind to be approved by US regulatory authorities and is a product of ICE, an operator of the New York Stock Exchange, where everything operates under strict rules and regulations of the American financial market.
Bakkt aims at providing all users and institutional investors with the purchase, storage, and sale of cryptocurrency on its reliable and regulated platform. In simple words, the main goal of Bakkt is to create the first regulated platform for attracting new investors to the crypto market.
The point is that transactions with Bitcoin futures are carried out with cash on such exchanges like the Chicago Mercantile Exchange, the Chicago Options Exchange. But Bakkt’s futures contracts allow customers to receive Bitcoins after the contract expiration, rather than their equivalent value in official currency.
Besides, not only monthly but also daily contracts are available to clients – Bitcoins will be transferred to the buyer’s account on the next business day after the contract is closed.
How May Bitcoin Futures Influence the Industry as a Whole?
It is believed that Bitcoin futures will contribute to the massive popularisation of speculative trading with cryptocurrencies. It seems that such a form of financial instrument can be recognized by regulators, who wanted to prohibit cryptos at all. So, we believe that this is an excellent additional financial instrument for earning a profit. It’s only starting its path, but it is likely to gain the attraction of most investors.
But if you still doubt or want to earn a profit while speculating, we recommend you to pay your attention to some really reliable platform like the Monfex platform, for example.