What does trading bitcoin futures mean
Jan 30, · Like a futures contract for a commodity or stock index, Bitcoin futures allow investors to speculate on the future price of Bitcoin. The Chicago Mercantile Exchange (CME) . Dec 19, · When Bitcoin’s price crossed $23,, the market volatility dropped. With Bitcoin’s price trading within its newly-discovered price range, it seemed to be closely bound to the $22,level. In fact, at the time of writing, Bitcoin was valued at well over $23, In such a scenario, $22, comes across as the support level, an observation supported [ ]. Dec 15, · Futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. Here, .
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However, as they were launched in December, a month in which trading activity is generally lower than in other months, liquidity will likely pick up in the new year. Additionally, through the use of futures contracts, investors can now bet on the price of bitcoin declining by selling futures.
More importantly, however, investors with exposure to digital currencies can now sell bitcoin futures to hedge themselves against a market crash. This will allow more institutional investors to gain exposure to digital currencies going forward as they can reduce their overall crypto asset market risk by shorting bitcoin futures. Bitcoin futures are also a regulated financial product, which means that large institutional investors who are bound by right regulations are now able to bet on the price development of bitcoin by buying exchange-traded bitcoin futures.
This opens bitcoin up to a much larger investment community than purely high net worth individuals and hedge funds, as has previously been the case. If you are an active trader who wants to take profits through intra-day or intra-week trading of bitcoin, bitcoin futures might be the right option for you since you will be trading a relatively liquid, transparent, regulated investment vehicle. Also, in this case, the margin trading aspect of bitcoin futures contracts may play in your favor as investors can buy one futures contract but only need to put down 35 percent CME and 44 percent CBOE as initial margin for the trade.
Currently, only a handful of brokers have enabled bitcoin futures trading for private clients. Ally Financial and Interactive Brokers are two of them. However, as the bitcoin futures market grows, more brokers will likely follow suit. If you are a private investor looking to buy and hold bitcoin as a long-term investment, you are better off buying the digital currency itself and storing it securely in an offline bitcoin wallet rather than purchasing futures.
Firstly, futures contracts are short to medium-term investment vehicles and secondly, when buying futures, investors are required to have funds in a margin account in case the value of the futures contracts drops.
If the price drops to a certain level, the investor receives a margin call and needs to top up his or her margin account. Given the high volatility of bitcoin, margin calls will likely become a regular feature for bitcoin futures buyers. Hence, for long-term holders who are happy to hold their coins through the volatile periods, simply buying and holding the actual digital currency itself is the smarter option.
For institutional investors, bitcoin futures are the easier option to gain exposure to bitcoin and for many, it is the only option due to the tight regulatory requirement to which they need to adhere. Perhaps the most impactful aspect of the launch of bitcoin futures contracts on the CME and CBOE is that it has opened bitcoin up to the entire institutional investment community.
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Bitcoin Market Journal is ad-free, so you can trust what you read here. Sign up for our newsletter and see for yourself. What are Bitcoin Futures? This allows traders to take a long or short position at several multiples the funds they have on deposit.
As the account is depleted, a margin call is given to the account holder. However, cryptocurrency exchanges face risks from hacking or theft. Prudent investors do not keep all their coins on an exchange. They use cold storage or hardware wallets for storage. Now with Bitcoin futures being offered by some of the most prominent marketplaces, investors, traders and speculators are all bound to benefit. Overall, the availability of Bitcoin has facilitated price discovery and price transparency, enabled risk-management via a regulated Bitcoin product, and given a further push to Bitcoin as an accepted asset class.
CME Group. Cboe Global Markets. Accessed April 18, Cboe Futures Exchange. Financial Futures Trading. Metals Trading. Your Money. Personal Finance. Your Practice. Popular Courses. Bitcoin Guide to Bitcoin. Cryptocurrency Bitcoin. What Are Bitcoin Futures?
Key Takeaways: As with a stock or commodities futures, Bitcoin futures allow investors to speculate on the future price of Bitcoin. CME offers monthly Bitcoin futures for cash settlement. Article Sources. Investopedia requires writers to use primary sources to support their work.
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