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.
How To Invest In Bitcoin Futures
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. Most of the time, the transparent trading volume is just a fraction of the trading volume displayed by the exchange. This is a widely known problem in the crypto industry that can cost you money.
How do CME Bitcoin futures work?
If you want to learn more about it and how to differentiate the real from the fake trading volume, check this guide. This is another popular strategy among advanced traders. Most Bitcoin futures, traded on crypto exchanges, provide leverage anywhere from 2x to x leverage. The cost here refers to the initial margin the exchange requires from you to keep such a position open. Also, here it is vital to keep in mind whether the futures contract has an expiration date.
Make sure to keep that in mind when trading on leverage. This is on purpose so that exchanges can prevent market manipulation. That way, traders have no incentive to artificially affect the price of the instrument to reap profits. Trading crypto-related products on a margin can pose an excessive risk. Bitcoin futures were a long-awaited instrument.
Both before their launch and even today, they attract plenty of interest from all types of investors. The main reason is the variety of advantages they provide. Here are the main pros of the Bitcoin futures and the reasons why these instruments have become a preferred choice to the investment public:. Large-scale investors like funds or institutional asset managers are attracted to Bitcoin futures as they allow them to profit from the cryptocurrency market, which is otherwise unregulated and unaccessible.
How do futures contracts affect Bitcoin prices?
Retail investors or small futures traders fancy BTC futures as they are an easy way to speculate on the crypto market. Even crypto miners, merchants, or Bitcoin ATM operators take advantage of BTC futures as they allow them to smoothen and stabilize their exposure while focusing on their core business. With BTC futures, things are different. As they are traded on an exchange regulated by the CFTC, they bring confidence in the investors and help build a healthier market environment. Bear in mind that it is always better to trade Bitcoin futures on a regulated exchange like the CME.
Aside from the peace of mind and minimized risk of hacks or outages, you will also ensure that you are trading on a transparent venue with real trading volume. Although rarely held till expiration if applicable , some futures contracts may do so.
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With BTC futures, on expiry, the investor receives cash, rather than physical delivery. This eradicates the need to deal with the technological challenges surrounding the possession of cryptocurrencies, including storage, transaction management, etc. Due to the shady history of the cryptocurrency world, some countries have adopted stricter policies that vary from stringent requirements to the complete ban of cryptocurrency trading. This brings options traders another field to apply their expertise and helps them enter the crypto world through their preferred instruments.
Although highly-popular instruments, Bitcoin futures contracts have some drawbacks as well. The idea is to better control volatility and minimize the effect of wild price swings. However, many people consider this as a major challenge that limits the effectiveness of the futures instrument. Although the price limit we mentioned above is a useful tool in controlling volatility, according to some experts, in case of systemic problems, it can lead to a domino effect where many traders sell their futures contracts during an extended period of time.
Consequently, the instrument can destabilize the market by leading to a snowball selling effect. To overcome this, some experts are pleading to establish a separate guarantee fund for bitcoin futures to help isolate risk. When introduced for the first time, Bitcoin futures arrived as a revolutionary instrument that brought the uprising and high-potential asset class to the masses and, most importantly, to institutional investors.
The case is no different today. All this, in addition to the fact that Bitcoin futures provide easy exposure to the digital assets class without the accompanying technological complications, make it a widely-preferred instrument from both beginners and professionals. In the end, this is an alternative way to get exposure to the world of cryptocurrencies. Whether through futures contracts, buying cryptocurrencies, or waiting for the potential introduction of Bitcoin ETFs, it is up to you and your trading plan. Earn2Trade Blog. October 16, Table of Contents.
What are Bitcoin Futures? Bitcoin Futures History. Not just that, it allows you to trade with as minimum as 0. With various leverage options, you can take the opportunity of leverage to as much as x! With nine major currencies-backed contracts being offered, there are pairs which can be traded on long-side as well as short!
Offering multiple languages to find ease, the trade screen has all the requirements that you would need in a single display. Have a look:. Not just the order book available, the exchange shows us the market trades as well. How convenient! Not to forget, you can also join the referral program on the exchange to earn rewards for yourself. Enough of the excellent characteristics mentioned about the exchange, let us now take a peep into how you can trade at the BTCC exchange.
You will not believe — creating an account on BTCC platform only takes 30 seconds to be functional. YES — that is only half a minute. How convenient. Below are the steps mentioned once you have registered yourself a new user:.
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Step 1 Login into your account. This will open up the English version of the platform for your ease. Once you are in, press on the login option shown below:. Step 2 Once you have logged in, you are on the platform. From here, you can check your assets and enter the trading screen, which will allow you to trade. Once you press on it, a screen like this should open up for you which should allow you to make deposits as well.