March 20, 2024

How Do Bitcoin Futures Work?

There’s no denying that crypto futures trading is the future, as more people get accustomed to it. But there’s a long way to go before people start venturing into the field without being skeptical about it.

Talking about crypto futures trading, the popularity of Bitcoin futures is skyrocketing in recent times. This is because it offers investors a good way to hedge their crypto holdings and speculate in the crypto market.

Given the hype about bitcoin futures, it is common for people to venture into it. And if you are also considering the same, you should first learn the basics. Here in this post, we will cover important details you should know about bitcoin futures.

red and blue light streaks

What Are Bitcoin Futures?

To understand bitcoin futures, it is important to learn about Futures contracts. It is a derivative contract type that requires two parties to exchange a cash equivalent or an asset, at a pre-set value and date.

When you trade Bitcoin futures, you predict Bitcoin’s future value, and if your speculation is correct, you receive a cash settlement from the other party who predicted it wrong.

Talking about Futures contracts, there exist different types, and they are all regulated by the Commodity Futures Trading Commission (CTFC). Since they treat Bitcoin as a sort of commodity, the Futures contracts are commodity futures.

For those unversed, Bitcoin futures contracts are traded on the Chicago Mercantile Exchange (CME). They add new contracts for cash settlement each month, and BTC futures contracts for half a year. Additionally, they offer quarterly contracts for the four quarters of a year.

It is worth noting that futures contracts released monthly expire on the last Friday of each month.

How To Trade Bitcoin Futures?

Whether you trade bitcoin futures or any other crypto futures, you cannot do without a reliable crypto trading platform. It is the bare minimum you need to venture into crypto futures trading.

Since each Bitcoin futures contract offers 5 BTC, it works as a great leverage for traders. They take advantage of this leverage to speculate and earn big returns even on small investments.

The good thing about Futures contracts is that they make investments less risky. It is because of this reason investors can sell a portion of their bitcoin futures and get an insurance policy against a market crash.

Long-term investors can also benefit from bitcoin trading futures for hedging or speculative purposes.

Are Bitcoin Futures A Good Investment?

Bitcoin futures can be both good and bad for investors. For starters, futures contracts give investors leverage, flexibility, and risk management. But leverage can also lead to losses, and therefore, one needs to be careful about it.

Plus, bitcoin futures can sometimes lead to forced liquidation of their positions, especially if it is unable to keep up with the margin requirements in their accounts.

Your trading profits are also affected by exchange fees. You must remember these things when venturing into bitcoin futures trading.

Bitcoin futures give people a unique way to engage with the cryptocurrency. But it is important to maintain caution when involving yourself in something as risky as bitcoin futures.

Master Henry

Meet Master Henry, the prolific Australian author with a flair for capturing the essence of lifestyle, travel, and fashion in his captivating prose. Hailing from the land Down Under, Henry weaves vivid tales that transport readers to exotic destinations and infuse his writing with a touch of Aussie charm. With a keen eye for trends and an innate understanding of the finer things in life, Master Henry's work transcends conventional genres, offering a unique blend of sophistication and wanderlust.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *