A futures exchange is a type of monetary exchange through which people can make a contract to buy a specific product or financial instrument for a particular price whose delivery is often set to a particular time in future. This contract is also known as a Futures contract. The futures trading can now be seen as a common thing in cryptocurrency world. Get to know all about crypto and bitcoin futures.
Basics of Crypto and Bitcoin Futures
Crypto futures refer to the type of trade which involves the action for setting up the future price for the crypto assets to be brought in future. Bitcoin Mercantile Exchange (BitMEX) is the most notable platform for different types of cryptocurrency futures exchange.
Bitcoin futures are the first cryptocurrencies which also stand to be the most popular among the crypto futures. Although Bitcoin emerged in 2009 for the first time, they rose to immense popularity during the end of the year 2017.
The Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) are the two most notable platforms for Bitcoin futures exchange. These two platforms offer cash-settled Bitcoin futures trading which indicates after the contract of Bitcoin futures end, the value of the product will be paid to the trader in cash and not in Bitcoin.
Since the market dictates both the price of the asset (Bitcoin, in this case)and the contract, the trader is at free will to buy and sell these futures contracts at any time within the stipulated time frame mentioned in the contract. This is because the prices of the assets keep changing tremendously, with the changes sometimes leading to profits and sometimes loss.
You can also play exciting casino online games like free mobile Roulette using the Bitcoin.
The Working of Futures Trading
Trading means buying and selling products multiple times. The same gets applied in Futures trading wherein the Bitcoin (or any cryptocurrencies) are sold and bought multiple times depending on the changes occurring the market. As mentioned above, these exchanges often take place through trading platforms such as BitMEX, CME and CBOE.
Purchasing Bitcoin Future: Once the trader has bought the Bitcoin futures, according to the contract he/she can sell and buy these futures contracts any number of time before the expiration of the contract. Say, for example, a person ‘X’ buys a Bitcoin futures contract at £4000 with the contract period of being January 1st to February 1st. X sells it on January 10th when the price of the Bitcoin has increased to £4200 and thus earns a profit of £200. But consider if the price of Bitcoin had reduced from £4000 to £3800, and X sells it during this period, he/she would end up having a loss of £200.
Selling Bitcoin futures: There is also an option of short-sell in this Bitcoin futures business. Short-sell can be explained this way- person X borrows a Bitcoin futures contract from another person on exchange terms and sells it. X sells it with the intention of buying the contract back when the price of it gets reduced so that he/she can keep the price difference that arises.
Like many other products, Crypto and Bitcoin futures come with their own set of pros and cons. There is definitely high risk involved which can sometimes be good and other times depressing.
While the market is generous and doing well, the profits earned through futures are mind-blowing. This was practically seen when Bitcoin prices before December 2017 lingered around $998 per Bitcoin. But on December 17, 2017, they suddenly gained momentum and reached a price of a whopping $19,666 per Bitcoin.
Also, the losses can be expected similarly. On January 1, 2018, the value of 1 Bitcoin got reduced and stood to $13,412.44.