Jun 03, · Bitcoin futures are futures contracts that speculate on the price of Bitcoin without participants actually having to own Bitcoin. Jun 20, · Bitcoin futures is a new trading instrument which came from usual stock market. Seems to be a new hard concept to understand – how do Bitcoin futures work in trading, what are the exchanges and how to use them/5(K). Bitcoin futures are used to bet on future price movements either to hedge spot market positions or to benefit from both growing and falling market trends without actually owning the underlying asset.
What is bitcoin futures marketWhat Are Bitcoin Futures? Complete Beginner's Guide
Hardcore crypto fans believe that the regulatory environment kills the libertarian nature of cryptocurrency that was born to be free, but the majority of market players are sure that regulation is a necessary step to Bitcoin mass adoption. It sets the rules to be observed by all participants, ensuring equal opportunities for investors and speculators, fraud protection and predictability.
Most Wall Street firms and investment funds will not touch anything that is not regulated, while futures offer them an easy way to get involved in operations with digital assets. It means that in the long run, these regulated instruments will attract professional players on the market, increasing the liquidity of both futures contracts and Bitcoin itself. Leverage allows trading many Bitcoins while paying only a portion of the real price. It makes futures trading more appealing to investors as they don't have to pay the full cost of the asset to profit from the price movements.
At the same time, it makes trading riskier and may cause significant losses if a trader gets it wrong. Bitcoin futures provide traders with the instrument to short sell, that is to bet on price fall without actually owning the asset. It unlocks investment opportunities for crypto skeptics, namely for those who don't have Bitcoins, but believe that the price will go down.
However, there are a couple of flies in this ointment, or risk factors to be considered by potential investors. Bitcoin futures are considered to be highly risky instruments due to potentially significant losses. If you are wrong with your price forecast, your money will flow out of your pocket right to the trader who got it right.
Considering leveraged trading and highly volatile nature of cryptocurrency markets, the losses may be substantial. Thomas Peterffy, a famous American billionaire, and CEO of Interactive Brokers, believe that there is a small but real risk that Bitcoin futures trading could cause a Lehman-style crisis.
While Bitcoin futures are supposed to make crypto trading easier and attract new money to the market, they are not readily available for anyone interested. Extreme volatility justifies high margin requirements, but they raise the entry barrier for individual investors.
Apart from that, both CME and CBOE offer Bitcoin futures trading only for qualified investors, which means that retail investors won't be able to trade bitcoins legally unless they get this status. Large investors with substantial financial assets can use futures for price manipulations. Thus, placing large sell orders with futures, they create bearish sentiments and force smaller investors to get rid of their assets while it is not too late.
The price goes much lower, allowing large players to buy cheap. The information provided by FXStreet does not constitute investment or trading advice and should be just treated for informational purposes.
Our content may also include affiliate links or advertising from other websites, however we are not responsible or liable for any actions of other websites. Image: Shutterstock. Now, Bitcoin futures volume is widely considered to be one of the most accurate indicators of institutional interest in Bitcoin. Since many of these products are regulated, they allow firms to gain exposure to Bitcoin without— in most cases —needing to hold the underlying asset, while the capacity to trade on leverage allows these firms to closely manage their risk profile.
Bitcoin futures are a type of simple agreement contract to buy or sell Bitcoin at a specific price at a specific future date. They differ from a Bitcoin ETF , which is a commodity fund that tracks the price of Bitcoin as its underlying asset. Advocates of Bitcoin futures argue that their emergence leads to more efficient price discovery —since traders and investors can now short Bitcoin just as easily as going long.
However, in the years since they first launched, Bitcoin futures have been frequently scrutinized by industry experts—many of whom argue that some of the platforms offering Bitcoin futures products are not compliant with relevant regions, while some may be operating illegally.
The lack of regulatory oversight on some Bitcoin futures platforms has led to accusations of market manipulation. Matters came to a head in October , when BitMEX—once the most popular Bitcoin futures exchange by trading volume—was charged with operating an unregistered trading platform, among other things. Moreover, the United Kingdom's financial watchdog, the Financial Conduct Authority FCA recently announced a ban on certain types of cryptocurrency derivatives for retail customers, including futures and exchange-traded notes ETNs —signaling a potentially worrying trend among regulators.
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.
These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts.
The offers that appear in this table are from partnerships from which Investopedia receives compensation. Related Articles. Partner Links.