What are Bitcoin Futures?

Author: nicolas tang

bitcoin futures

Bitcoin futures contracts are one of the most traded cryptocurrency derivatives. They were introduced by Cboe Futures Exchange, LLC in 2017. Since then they have become one of the best achievements in Bitcoin’s market to date. Currently, there are quite a number of crypto exchanges including the likes of Chicago Mercantile Exchange (CME), BitMEX, TD Ameritrade and Phemex among others are now offering Bitcoin futures. Bitcoin futures give the Bitcoin ecosystem transparency, liquidity and price efficiency.
Just like any other cryptocurrency derivatives, Bitcoin futures give crypto traders the chance of trading Bitcoins without the need to hold any Bitcoins.

What are futures contracts?

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. Counter parties 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. Long means that the party agrees to buy the underlying asset in the future at a specific price, while short means the party agrees to sell the underlying asset at a specific price upon the contract’s expiration in the future. Futures contracts are traded on regulated exchanges and are regulated by the Commodity Futures Trading Commission.

What are Bitcoin futures?

In a nutshell, Bitcoin futures contracts allow traders to trade on the value of Bitcoin without owning the Bitcoin. Most Bitcoin futures contracts are cash-settled, meaning that the trader receives returns in terms of fiat currencies. However, there are some Bitcoin futures exchanges that have introduced physical settlements, where the traders receive real Bitcoins once their contracts close.

Contrary to the spot market where buyers and sellers dictate the market prices of cryptocurrencies through over-the-counter (OTC) contracts, in Bitcoin futures trading, the exchanges standardizes the contracts. The Bitcoin futures contracts have standardized sizes depending on the exchange. In some exchanges, a single Bitcoin futures contract could be worth $1 while in another exchange the contract could be worth $10.

There are a number of benefits to this type of trading:

Hedge Price Risk

Investors who are holding digital assets can mitigate the risk of a falling price by simultaneously taking a “short” future position on the asset in question. If the price falls, the “short” position will mitigate losses by providing additional revenue.

Speculate on Market Direction

Cryptocurrency futures trading brings with it the opportunity for real speculation to occur – traders can make their opinions felt in the market with Bitcoin futures positions. Think the price of Bitcoin is going to the moon? Get extra long on futures and multiply your returns. Think LTC is going to die? Put your money where your mouth is and get short on Litecoin Futures!

Stabilize Price Fluctuations

With speculation comes stability as long term views of the markets play a more significant role. Whether you are a miner with expected Bitcoin flows or a Bitcoin ATM operator with inventory to manage: futures help crypto merchants smoother their exposure while being able to focus on their core business.

How to trade Bitcoin futures?

Let’s understand the context first, for example. Two parties people agree on a deal and that will happen in a later on time. In this case 100 lbs of brown sugar for $1 for per pound. So the sugar company producer, will agree on this deal and start producing the products based on those agreements. To keep in mind, the deal was made on July 4th and the transaction will take place on November 4th of the same year. So, this was an agreement to buy or sell some commodity on a given date for a given price. From this, we can say that the best way to trade futures, it is to manage the unknown and predict futures market changes. In the case of the financial futures, which are literally piece of papers like currency.

Where can I trade Bitcoin futures?

There are many cryptocurrency trading platforms, however not many do trading futures. One of the recent new player in the market is Phemex. Phemex is the fastest cryptocurrency derivatives exchange platform on the market. It offers Bitcoin, Ethereum, Ripple, Litecoin, and other perpetual futures contracts, with up to 100x leverage. Trader will receive up to $72 in Crypto trading bonus.

For any inquiries contact us at support@phemex.com.

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