The Basics of Bitcoin Futures: What Are They?


  • The concept of a futures contract involves a trader being obligated to purchase or sell an asset at an agreed-upon price, quantity, and time.
  • Market liquidity is boosted by bitcoin futures and arbitrage prospects are created.
  • Bitcoin futures contracts will also fluctuate in value as the trading value of Bitcoin changes.

Cryptocurrencies with the largest market capitalization are Bitcoin and Ethereum. It’s also extremely volatile, just like other cryptocurrencies. When traders buy and sell Bitcoin on spot markets, they must exchange cryptocurrencies at their current exchange rates.

Traders engage in a futures contract when they agree that they will buy or sell an asset at a specific time, quantity, and price. Buying bitcoin increases its value, so you can buy it at a discount below its market value, while selling bitcoin decreases its value, since sellers profit from a decrease in price.

Futures contracts can be traded on some crypto exchanges for lower trading fees, so traders can maximize their account balances.

Exiting a futures position as a trader

Offsetting, rollovers, and expiration are three methods for exiting a futures contract. A trader balances out their effective obligations by creating a new futures contract of equal value and size that is equal to the one they offset. Rollovers are made when a position is offset, but with an expiration date that is further in the future. The expiration of a contract is just what it sounds like: it’s the moment when the parties holding the contract purchase or sell within the terms of the agreement.

Hedging and futures contracts

In addition to futures trading, hedges can also be used. For traders dealing with the volatility of cryptocurrencies, hedging is an effective way to reduce risk.

Traders can reduce their overall risks by hedging, although their potential profit is also limited.

What Bitcoin futures have to offer and what they don’t

It is important to keep in mind that bitcoin futures are speculative investments by definition. While Bitcoin is currently on a bull run, what tomorrow may bring is anybody’s guess. For its decade-plus history, Bitcoin has proven that the only constant is price volatility. A future asset that isn’t worth the risk might not be there if you speculate at the wrong time.

Being an experienced investor also has its advantages. Investing successfully in futures requires a thorough knowledge of the market, the ability to verify reasonable conclusions, and the ability to evaluate unfounded claims.

As long as good information is utilized, Bitcoin futures are a speculative market. Bitcoin futures, however, are not exactly accessible to the average person, since doing so is not easy.

A rising market price is a great time to buy Bitcoin futures. Utilizing Bitcoin Futures could, theoretically, result in major profits for an investor who timed it right.

Furthermore, Bitcoin futures do not require you to hold any Bitcoin, which is quite unusual. As opposed to trading Bitcoin at a current price, this involves trading Bitcoin at some future date, as agreed. In order to get involved, you don’t even need a Bitcoin wallet or even an understanding of the market. But in case you are a beginner and thinking of buying Bitcoins using an exchange it is rather advisable that you create a digital  Bitcoin wallet  to store your Bitcoins.

Repayments in cash

Cash is used to clear Bitcoin futures. Unlike a futures market, Bitcoin trading only takes place at future, pre-agreed prices, so agreements are fulfilled by future trading. Due to the possibility of settling in cash, another advantage of Bitcoin futures is that technical expertise and complex software are not required.

Trades involving margins

Margin trading is an aspect of Bitcoin futures, which means that an investor can participate with only a portion of the contract’s total.

Shorts of cryptocurrencies

An investment strategy called “shorting” involves betting that an asset’s market value will fall so that you can profit from it. Shorting Bitcoin futures is possible at any time because futures and their value are constantly fluctuating.

An important note about bitcoin futures

There isn’t only fun and games when it comes to Bitcoin futures. Contracts are serious obligations, and if they reach their expiration date, the trader must fulfill them legally.