What Are Bitcoin Futures?
For a long time, Bitcoin remained outside the law. Now everything has changed. Two major US exchanges – the Chicago Stock Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) – have launched bitcoin futures trading. So bitcoin as a financial instrument gained recognition from government agencies, and the launch of futures will allow legitimizing this tool for institutional investors, hedge funds and other participants in the financial market.
What is special about Bitcoin futures?
Futures – is a derivative financial instrument, or “derivative”; This is a contract that is concluded on an exchange between two parties: the seller and the buyer. Very often, the role of the contractor under the contract is performed by the exchange itself, which then finds the other participant as the second party to the contract.
Note that it is possible to trade in futures contracts at BTC without having the cryptocurrency itself, but only speculating on its price. That is how, in particular, transactions take place on such well-known exchanges as CME and CBOE, focused mainly on large investors. However, on the upcoming Bakkt trading platform, futures will be presented that involve the supply of physical Bitcoin after the expiration of the contract.
How does Bitcoin futures work?
Bitcoin futures is the obligation of one party to the other to buy or sell a certain number of bitcoins at an agreed price before the expiration of the contract in question.
The price of the futures is the guarantee of the contract. It can be 10-15% of the total amount of the transaction. This provides an opportunity to get a large income even with small investments by both parties due to the so-called leverage.
It is extremely important in this situation to correctly predict the future price of the underlying asset. Otherwise, losses are possible. Control over the fulfillment of futures obligations in accordance with current legislation provides the exchange.
The impact of futures on the course and the Bitcoin market
It’s no secret that demand creates supply. The same pattern is observed in the case of the course of Bitcoin – respectively, the cryptographic market as a whole. That is why many analysts believe that the emergence and closure of futures contracts for Bitcoin are of great importance for the course of the first cryptocurrency. The question is only in the degree of interest in Bitcoin of large financial institutions, whose work is carried out within the framework of current legislation.
Such interest of financial organizations strengthens the legal basis of cryptocurrency in the existing system. On the one hand, this will ensure the formation of digital currencies as tradable assets (respectively, this will inevitably provoke a rise in the cost of Bitcoin).
How will be trading Bitcoin futures
As a rule, non-professional traders make up the majority of the crypto market. Simply put, these are people who are willing to invest money in everything that shows a rise in price, believing that the growth trend will always continue. However, major market players are not like that. Where an inexperienced investor will buy, an experienced one, on the contrary, will sell.
Bitcoin futures trading follows clear rules, and most likely this situation will continue in the future due to the fact that this market is regulated. To prevent manipulation, futures have a limit on the number of contracts.