08 Aug Breaking Ground: The Launch of Bitcoin Futures Trading
Bitcoin has seen a massive rise In popularity as a method for ecommerce, in the past decade. Many investors however have increasingly viewed the cryptocurrency and crpytocurrencies in general with suspicion due to the volatile nature of the market. Despite these glaring issues, Bitcoin has become much more legitimate after the introduction of Bitcoin futures contracts.
ProShares launched Bitcoin ETF based futures contracts, this was a big deal because this was the first ever crypto exchange traded fund that gained the regulatory approval needed to trade on US markets.
The benefits of Bitcoin futures are the fact that they offer investors a rather unique way to speculate in the market, and allosws them to hedge their crypto holdings.
Futures are basically a derivative contract that bound two parties to buy or sell an asset at a predetermined price at a specified future date. When investors trade bitcoin futures contracts they essentially speculate the future price of Bitcoin. At its crux, these are two parties who make a bet, one believes the price will go up the other believes it will go down. The person who gets it wrong has to pay the other party in cash. Futures contracts exist for currencies stock exchanges and commodities. Usually the CFTC (The Commodity Futures Trading Commission) regulates the market, and as Bitcoin is considered a commodity, bitcoin futures are commodity futures. As the Bitcoin futures contract are traded on the Chicage Mercantile exchange (CME), this introduces new monthly contracts for each and every cash settlement.
Trading futures contracts can be a great way to make money from the volatile nature of Bitcoin and their changes in price. Its important to understand that each Bitcoin contract represents 5 bitcoin this means that trading bitcoin futures contracts has an inherent leverage that isn’t there in other types of futures contracts. This essentially means that people in the short run can profit massively from short term swings in the market, while making relatively small upfront investments.
Automated futures trading can be your way to make great short term profits utilizing bitcoin futures contracts.
Breaking Ground: The Launch of Bitcoin Futures Trading
Ever since the launch of bitcoin futures trading, people have been using bitcoin futures to generate a great deal of revenue for themselves.
Just like the cryptocurrency market, bitcoin futures have several pros and cons for investors. Futures contracts provide investors with the flexibility, leverage, and potential to mitigate risk via hedging. However, leverage can serve as a double-edged sword for investors, and future trading losses can add up quickly if there is a bad turn in the market.
Bitcoin futures traders also face margin calls that trigger the forced liquidation of their positions at inopportune times when they are unable to maintain minimum margin requirements in accounts. Bitcoin futures traders also have to pay exchange fees, which hurt trading profits. As bitcoin is volatile, the futures market gives people the ability to take on large positions, which can help them make big swings in the market. However, it’s a highly speculative market, which means people end up with oversized positions that end up being worth either very little or nothing at all.
Some of the benefits of trading bitcoin futures are the fact that it can be safer than owning crypto itself and that it is very simple to trade bitcoin futures. You don’t even need to create a crypto wallet for this or put money into storage and security because there isn’t any Bitcoin exchange. Essentially, you don’t own the volatile asset itself; you just own the future contract.
A few things to consider when conducting bitcoin futures trading is trading volume, which can often be a copy of spot markets. Price fluctuations are another problem, especially during volatile stretches. Cryptocurrency futures often appear to follow spot market prices, which lead to prices being traded at premiums or discounts.
The above implies that bitcoin futures are not as protective against the underlying futures market as one might think.
Another problem is the fact that many future exchanges are unregulated, which means that there is no real oversight.
CONCLUSION:
Trading cryptocurrency futures contracts can be a great way to generate sufficient revenue for oneself if one believes that one fully understands the futures market and knows the risks involved; it’s far safer than owning the volatile asset itself, the cryptocurrency, in this case, the bitcoin. However, if people are new to trading futures, this can be a very risky game for them, and the high leverage provided by these futures can even be very costly.
The best advice for investing in futures contracts is to learn as much as possible about what you intend to do and then invest in the future.