Nov 16, · Bitcoin futures: a note of caution The world of Bitcoin futures isn’t all fun and games. Taking on a contract is a serious obligation, and if it reaches its expiry date, the trader has a legal obligation to fulfil it. Futures could lose you a lot of money, as you could be forced to buy Bitcoin way above its current trading price. Futures are extremely capital efficient, meaning that less money is required to open positions than if you were spot trading (1x) or margin trading (x). This means if you have 10 Bitcoin and are scared of price decline, you have to trust % of your money to spot exchange to sell, or 20% of your money on margin exchange. May 19, · Fed liquidity boosts bitcoin futures trading The recovery in bitcoin has come alongside the overly generous provision of liquidity by the Fed, and the worrying development is .
Will futures trading hurt bitcoinHow To Invest In Bitcoin Futures
Some crypto exchanges, such as OKEx , have lower trading fees for futures contracts, which means that traders can squeeze a bit more out of their accounts by using futures. Instead, they are traded like other assets. As the trading value of Bitcoin varies, so too will the value of different Bitcoin futures contracts.
When entering a futures contract, there are three ways a trader can exit their position: offsetting, rollovers and expiry. Offsetting is the most common, and occurs when a trader creates another futures contract with an equal value and size, making their effective obligations zero as they balance out.
Rolling over is done by offsetting a position, but with an expiry date that is further into the future. Another trading method for futures is hedging. Hedging is a way to reduce risk, which is useful for traders dealing with the volatility of cryptocurrencies.
First things first: Bitcoin futures are—by their very definition—speculative investments. To successfully utilize futures, an investor needs to understand market behavior, have enough knowledge to pay attention to reasonable market predictions, and enough sense to discard unfounded claims.
Ultimately, Bitcoin futures are speculative, but it is possible to leverage good information on a best effort basis. Doing that, however, is not exactly easy, so one might argue that Bitcoin futures are not very accessible for the average person. The inverse of this is that Bitcoin futures are a great way of getting ahead of a positive market price.
If an investor times it right, there could, at least hypothetically, be major profit to be had by leveraging the Bitcoin Futures market. Bitcoin futures also—counterintuitively—don't involve holding any Bitcoin whatsoever. Instead, it simply involves trading Bitcoin at a future, pre-agreed upon date, whatever the price at that time may be. Bitcoin futures are settled with cash. Because no active Bitcoin trading takes place in a futures market, agreements are satisfied by trading at future, pre-agreed prices.
Another oft-cited advantage of the Bitcoin futures market is that the possibility of settling in cash means that no complex software or technological expertise is really necessary in order to get involved in this arena. Futures and their value are in constant flux, so there are plenty of opportunities for a savvy investor to short on their Bitcoin future at any time.
For example, say the Bitcoin market is in the middle of a esque crypto winter. An investor can continue to repurchase their future, and then conceivably generate a profit for themselves. CME , the world's largest futures platform, operates a significantly larger futures business than Cboe. Like Cboe's contract, CME futures are also cash settled, meaning that no bitcoins will be bought or sold. CME's contract consists of five bitcoins, while Cboe is one bitcoin.
Eastern time with a one-hour break each day beginning at 5 p. CME will apply circuit breakers of 7 percent, 13 percent, and 20 percent to the futures fixing price. Trading will not be allowed outside of the 20 percent price limit. Customers should inform themselves as to how the index or auction prices used to settle the contract are determined. Both Cboe and CME were given the go-ahead for their futures contracts through a process called self-certification, which has incurred the wrath of Futures Industry Association FIA , a trade association of derivatives brokerages, who argue that Bitcoin futures contracts have been rushed to market without proper consideration of the risks.
Bitcoin's speculative fiat valuation indicates that it is widely used but the truth is that most bitcoiners do not live in the US. Bitcoin's biggest market is Asia, where futures trading is banned in most places. Bitcoin's wild volatility and bubble characteristics also pose a problem for hedgers. Besides, most large brokerages do not allow trading of Bitcoin futures or only allow under very stringent stipulations. Unless Bitcoin's volatility recedes , there's not going to be a very significant volume of futures trading.
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