Bitcoin Futures. How Does it Work? How Do I Buy or Sell Bitcoin Futures?
Bitcoin futures are a new type of financial instrument that allow investors to speculate on the price movement of bitcoin. The first such contract was launched by CME Group in December 2017, and since then many other exchanges have followed suit. These contracts give traders an opportunity to bet against or with bitcoin prices without actually owning any bitcoins themselves. This is done through a process called “margin trading” where you borrow money from your broker at interest rates typically around 2-3% per year.
When the value of Bitcoin rises above what you borrowed it will be deducted from your account until you owe them back more than they lent you. If the price falls below what you owed them you get paid instead. In this way, if the market moves up, you make money; but if it goes down, you lose money. It's similar to betting on sports teams: when their performance improves, you win; when it declines, you lose.
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How Do Bitcoin Futures Work?
Bitcoin futures work similarly to how stock options do. You can buy these derivatives either directly from the CBOE or indirectly through brokers who offer access to both the physical asset itself and the derivative product. For example, Coinbase allows users to trade futures using margin lending services provided by firms like Bitfinex and GDAX. Once purchased, you own the underlying assets — which means you hold actual Bitcoins — while the future represents ownership rights to those same coins. As long as the price stays within certain parameters, you'll receive payments based on whether the price increases or decreases.
What Is A Cryptocurrency Exchange?
A cryptocurrency exchange is simply a website that facilitates trades between cryptocurrencies. There are hundreds of different types of crypto exchanges out there today, each offering something slightly different. Some focus solely on fiat currency pairs, others only offer spot markets, some provide margin trading, and so forth.
Features Of Bitcoin Future
There are several key differences between traditional stocks and shares and Bitcoin futures.
1. Unlike traditional securities, Bitcoin futures don't require anyone to physically deliver anything. Instead, all transactions occur electronically.
2. Because no one needs to hand over cash or gold bars, Bitcoin futures aren't subject to capital controls. They're also not tied to any particular country or region.
3. Since Bitcoin futures aren't backed by real estate or tangible commodities, they're less susceptible to inflation risk. That said, because they represent ownership rights rather than specific amounts of virtual currency, they could still fall victim to deflation risks.
4. While Bitcoin futures may seem risky due to volatility concerns, they're far safer than investing in the volatile world of cryptocurrencies.
5. Like regular futures products, Bitcoin futures expire after a set period of time. However, unlike traditional futures, expiration dates vary depending on the contract being traded.
6. Most importantly, Bitcoin futures are designed specifically to help institutional investors enter the space. By allowing large institutions to hedge exposure to Bitcoin, they hope to reduce overall volatility across global markets.
Why Are People Buying And Selling Bitcoin Futures?
As mentioned earlier, people use Bitcoin futures to take advantage of the benefits offered by the technology behind the coin. Specifically, Bitcoin futures enable individuals to invest in the growth potential of the network without having to purchase the entire amount outright.
In addition, since Bitcoin futures allow for hedging against market fluctuations, they make it easier for big players to get involved with digital currencies.
How Do I Buy Or Sell Bitcoin Futures?
To begin buying or selling Bitcoin futures, first open an account at your chosen broker. Then select "Futures" under the section titled "Exchange." From here, choose the type of contract you'd like to place an order for. The most common choices include:
Spot Market - This option lets traders bet on the current value of 1 BTC. Spot contracts typically have shorter expirations than other options.
Long Term Contract - Similar to S, LTCs let traders bet on the direction of the price movement of 1 BTC over a specified timeframe. These contracts tend to be more expensive than their spot counterparts but last longer.
Short Term Contracts - STCs give traders the opportunity to speculate on short term movements in the price of 1 BTC. Short-term contracts usually cost much less than long-term ones.
Once you've selected which kind of contract you want to buy or sell, click "Buy/Sell," then specify how many units you wish to trade. Next, input the desired number of Bitcoins you'd like to own. Finally, fill out the remaining fields and submit your order. Once submitted, your order will appear as pending until it's executed. If you don't see your order reflected within 24 hours, check back again later that day.
What Is A Margin Call?
A margin call is when a brokerage firm demands additional funds from its clients to cover losses incurred during trading activities. It can happen if a trader buys into a position using borrowed money instead of his or her own funds.
Frequently Asked Questions
1. What is a bitcoin future?
A bitcoin future is a financial instrument based on the underlying asset. They were introduced in 2017 by Cboe Global Markets Inc., one of the largest derivatives exchanges globally.
2. How do I know whether my broker offers bitcoin futures?
Most brokers offer them now. You'll find this information listed on their website.
3. Can I trade bitcoins directly through my broker?
Yes! Many brokers offer direct access to cryptocurrencies such as Bitcoin. However, there may be fees associated with these transactions.
4. Why should I consider investing in Bitcoin futures?
Investing in Bitcoin futures allows you to gain exposure to the cryptocurrency while avoiding some of the risks associated with owning physical coins. For example, unlike purchasing actual Bitcoin, you won’t need to worry about storing private keys or keeping track of where all those coins are located.
5. Are there any tax implications related to Bitcoin futures?
No. There aren’t any taxes imposed on investors who purchase Bitcoin futures because they're considered securities rather than commodities.
6. Will I lose money if I invest in Bitcoin futures?
It depends on what kind of contract you decide to use. Some contracts pay off only if the price goes up; others require profits to offset losses.
7. Where can I learn more about Bitcoin futures?
8. Do I need special software to trade Bitcoin futures?
You don't need specialized software to trade Bitcoin futures. Most major online platforms allow users to create an account without downloading anything.
9. Which exchange does Cboe operate?
CBOE operates under the ticker symbol “BZX.” The company was founded in 2004 and has been headquartered in Chicago since 2009.
10. Does CBOE have regulatory approval for Bitcoin futures?
The Commodity Exchange Act regulates commodity markets including futures and options. In addition, the Securities and Exchange Commission oversees most stock market activity. Both agencies regulate CBOE.
11. Who owns CBOE?
CBOE is owned by Leucadia National Corporation.
12. How much time passes between each new round of Bitcoin futures?
Each week, CBOE releases two different types of contracts: cash-settled and physically settled. These contracts expire every Monday at 4 p.m. ET.
13. When did CBOE launch Bitcoin futures?
In December 2017, CBOE launched three different kinds of Bitcoin futures contracts: Cash-settled, physically delivered, and leveraged.
14. Is it possible to short sell Bitcoin futures?
Short selling involves borrowing shares of a security and then immediately buying back that same number of shares at a lower cost. Short sellers borrow shares from other traders and hope to profit from falling prices. This strategy works well for stocks but not so much for currencies like Bitcoin. Because Bitcoins are traded electronically, short sales would involve transferring digital currency across networks. That's difficult and expensive.
Bitcoin Futures are here to stay. They provide a way to get involved in this exciting industry without having to buy real bitcoins. If you want to know how to start trading bitcoin futures today, check out our guide above.