Bitcoin futures have been available since 2017 and are now available on quite a number of reputable exchanges. Bitcoin futures are relatively new and investors are still studying the markets and refining their trading strategies. Nonetheless, futures give a great opportunity for investors who want to speculate on the price of Bitcoin without necessarily owning it. Trading bitcoin futures can also help hedge the trader against the volatility of prices that is characteristic of the cryptocurrency market.
Financial futures refer to contracts which specify the selling and buying of underlying assets at a price that is predetermined on a given date in the future. The counterparties are obligated to honor the terms of the contract upon the expiry of the future either by selling or buying the asset once the contract expires.
Some of the biggest regulated exchanges now offer Bitcoin futures. Traders who were a bit skeptical of trading cryptocurrencies in a market that is unregulated can now rest easy and trade away. Analysts believe that 2019 will see even bigger names in stock trading adding to Bitcoin futures. This is seen as a first step in the right direction because regulated exchanges might just open their doors to cryptocurrencies in the next couple of years.
When trading Bitcoin futures, a trader can either go long or short on a futures contract. When a trader goes long, it means that the trader will buy the underlying asset on the given date. On the other hand, when a trader goes short, it means they are committing to sell the asset on a predetermined future date at a predetermined price. Futures contracts are typically traded on regulated exchanges and are regulated by the Commodity Futures Trading Commission (CFTC).
Simply put, to participate in a Bitcoin future is to make a bet on the price of Bitcoin for the given amount of time. Bitcoin futures work the exact same way that a normal future would work on the financial markets. if you are betting on the price of Bitcoin to rise, you take a long position and when they are expecting the price to drop, they go short. For example, let’s say Stacey owns 10 Bitcoin at $ 6,000 and expects the Bitcoin prices to drop. She can take a short futures contract at the current price. Should the price drop to 5,000 at the expiry of her contract, she can buy it back and this means she would have protected $10,000 of her investment. This demonstrates how traders can use Bitcoin futures to safeguard their investments in the cryptocurrency market.