Dec 22, · In response to growing interest in cryptocurrencies and customer demand for tools to manage bitcoin exposure, CME options on Bitcoin futures (BTC) are now trading. The value of options on Bitcoin futures is based on the regulated CME CF Bitcoin Reference Rate (BRR) and settles into actively traded Bitcoin futures. Jan 02, · Bitcoin futures are the most common crypto futures, hitting the mainstream financial world around this time last year. The Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) listed cash-settled Bitcoin futures trading products in December last year. Cash-settled means these futures are not backed by actual Bitcoin. Jun 03, · Bitcoin futures are futures contracts that speculate on the price of Bitcoin without participants actually having to own Bitcoin.
What is bitcoin future tradingWhat Are Bitcoin Futures? Complete Beginner's Guide
They can be used as a tool for the speculation on the price of financial assets as well. In the second case, futures contracts are used as a hedge against adverse price movements that would affect an entity that actively uses or produces the underlying asset in the contract. In this way, a party can ensure more stable financial results from their business at the current price rather than suffering losses from adverse price movements.
Futures contracts often lead to a less volatile price of the underlying asset in the long-term, especially if the futures market for the asset is highly liquid. Bitcoin futures are futures contracts that speculate on the price of Bitcoin without participants actually having to own Bitcoin.
Upcoming futures trading platforms like Bakkt offer physical delivery of the underlying asset for contracts, but it still remains within their custody rather than the purchasing party having to directly buy and sell Bitcoin on cryptocurrency exchanges and store it in their own wallet.
Entities that participate in Bitcoin futures are essentially making a bet on the price of Bitcoin over a specified period. Bitcoin futures work the same way as any futures contract on a traditional financial asset.
Investors can either go long on Bitcoin — expecting the price to increase — or short it, mitigating potential losses if they actually own some Bitcoin. Institutions are also more likely to offer Bitcoin futures trading to their clients since it is within a regulated exchange and reduces the risks associated with holding bitcoins. CBOE — one of the largest futures trading platforms in the world — launched the first Bitcoin futures in December , followed by another Chicago-based platform, CME.
Since then, several platforms and major institutions have signaled their plans to launch Bitcoin futures, including some cryptocurrency exchanges.
Some of the major platforms where you can trade Bitcoin futures include:. As such, they are generally considered to be an advanced trading instrument and are mostly traded only by experienced investors and institutions.
Oftentimes, traders who hold futures contracts until expiration will settle their position in cash. In other words, the trader will simply pay or receive a cash settlement depending on whether the underlying asset increased or decreased during the investment holding period. In some cases, however, futures contracts will require physical delivery. In this scenario, the investor holding the contract upon expiration would be responsible for storing the goods, and would need to cover costs for material handling, physical storage, and insurance.
CME Group. Commodity Futures Trading Commission. Financial Futures Trading. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Day Trading Basics. Day Trading Instruments.
Trading Platforms, Tools, Brokers. Trading Order Types. Day Trading Psychology. Table of Contents Expand. What Are Futures? Futures Explained. Using Futures. Regulation of Futures. Choosing a Futures Broker. Real World Example of Futures. Frequently Asked Questions. Key Takeaways Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset and have a predetermined future date and price.
A futures contract allows an investor to speculate on the direction of a security, commodity, or a financial instrument. Futures are used to hedge the price movement of the underlying asset to help prevent losses from unfavorable price changes. Pros Investors can use futures contracts to speculate on the direction in the price of an underlying asset Companies can hedge the price of their raw materials or products they sell to protect from adverse price movements Futures contracts may only require a deposit of a fraction of the contract amount with a broker.
Cons Investors have a risk that they can lose more than the initial margin amount since futures use leverage Investing in a futures contract might cause a company that hedged to miss out on favorable price movements Margin can be a double-edged sword meaning gains are amplified but so too are losses. 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. Watch the videos to learn more on how our Bitcoin contracts work and how they can be used. Save on potential margin offsets between Bitcoin futures and options on futures. Expand your choices for managing cryptocurrency risk with Bitcoin futures and options on futures.
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