Bitcoin Futures Guide (2023) – What to Know About Bitcoin Future Trading

Bitcoin futures trading is a type of derivative trading that allows investors to speculate on the future price of Bitcoin without having to actually own the cryptocurrency. Bitcoin futures contracts are agreements to buy or sell Bitcoin at a predetermined price on a future date.

Futures Trading for Bitcoin (BTC): A Guide

Several reputable markets provide Bitcoin futures trading. It's a novel financial tool with roots in the traditional stock exchange. Many people still have trouble wrapping their heads around Bitcoin's long-term potential. This primer is meant to shed light on the concept of BTC Future. Where and how may one buy, sell, and trade Bitcoins in the future? Let's start with a definition of futures before delving into the specifics of what a Bitcoin future is.

Please define the phrase "futures." The commitment to sell or buy an item at a predetermined price at a certain date is the essence of a future, which is why it is considered a financial contract. Futures contracts bind the buying and selling parties to the agreed-upon price, regardless of fluctuations in the asset's market value. Futures are used to protect against a decline in price by locking in an agreed-upon amount. Additionally, it serves as a medium for speculative trading.

Futures contract types

There are two primary categories of futures: cash-settled and deliverable.

Futures Agreement in Bitcoin That Can Be Delivered

Deliverables are tangible goods that a buyer receives as part of a transaction. Crude oil, Bitcoin, Apple stock, etc., are all examples of physical assets. At the end of the contract period, you must buy the asset.

Futures Contract on Bitcoin that is Cash Settled

Futures contracts that are settled in cash differ significantly from deliverable contracts. In this transaction, no actual asset is being acquired. Because of this, futures negotiations rely more on estimates of an asset's value than its actual delivery.

When trading, how do futures work?

Futures trading is conceptually comparable to actual asset trading. The best time to buy or sell an asset is when its price is at an all-time high. Before the end of the contract period, all transactions must be finalized. To better illustrate how futures trading works, let's examine this example. As an illustration, let's say that on January 1st, Peter intends to enter into a contract to trade Amazon futures until March 1st. Peter, by the terms of the contract, may buy futures at any moment throughout the contract period. Peter must also make arrangements for the futures to be sold before March 1st, the day on which the contract will expire.

Peter might lose money or make money doing this, depending on the performance of Amazon stock. Peter can make a profit from futures trading even if he doesn't invest in the underlying asset. Peter does this by making an educated guess about the future value of Amazon stock and then selling a futures contract. Peter would have to make a request for a contract on an exchange platform, sell it, and then buy it back at a significantly reduced price. Peter's gain results from the disparity in the contract's selling and buying prices.

Trading in Bitcoin Futures (Mechanics)

Futures are a specific sort of contract that is linked to a certain asset. Stocks, shares, commodities, and even cryptocurrencies like Bitcoin can all serve as underlying assets for futures contracts. Bitcoin futures are futures contracts where Bitcoin is the underlying asset. So, the futures contract is based on an estimate of Bitcoin's value. Futures contracts on Bitcoin can be used to protect your holdings from price fluctuations and other market risks.

Possibilities of Going Short or Going Long

A 'long' BTC futures position is determined by an investor's belief in Bitcoin's future growth or price. When the value of Bitcoin rises, a trader who bought a contract at the spot price could profit by selling it. The profit made is the total of the selling price minus the agreed-upon purchase price. The fact that a trader can turn a profit by purchasing and selling Bitcoin futures contracts indicates that this is a positive outcome or projection. A negative prediction or outcome is used to characterize a short position in Bitcoin's future. Depending on the exchange(s) used and the preferences of the trader(s), Bitcoin futures can either be cash-settled or deliverable.

The benefits of Bitcoin futures trading.

If purchasing and selling actual goods is an option, some investors may wonder why they should engage in futures trading at all. Because the concept of bitcoin futures is similar to that of trading, which is purchasing at a lower price in anticipation of a possible price gain at a later date. Futures trading in Bitcoin, on the other hand, has several benefits over the trade of real goods.

Bitcoins can be traded without actually possessing them.

Holding Bitcoins in your possession is unnecessary. Futures are not actual assets but rather a type of contract. You won't have to worry about cyber attacks or hackers, so any problems with keeping your Bitcoins safe won't be as pressing a concern. You can relax knowing that you aren't purchasing anything tangible; rather, you are dealing with a contract whose functionality is based on price speculation.

Trading using leverage is possible.

You can trade with more than you have in your trading account because of something called "leverage." You can buy assets for less than their true market worth through leverage trading, but you need to be careful because of the considerable risk involved, mainly due to incorrectly calculating the outcome.

Profits can be made by watching market fluctuations.

You can benefit from long trading on Bitcoin Futures by properly speculating that Bitcoin's price will go up. Short trading, or betting on a decline in Bitcoin's value, is a viable investment strategy.

Additional Information Regarding Bitcoin Futures

There is a lot of competition and stringent rules in the Bitcoin futures market. Contract prices can be rather high and are often set to reflect the value of one Bitcoin on the financial market. However, the contract fee is determined by the exchange firm you use. Therefore, the Bitcoin futures market may only be accessible to those with extensive trading knowledge and sufficient funds to execute. Margin requirements on some exchanges might reach 50%. This is an absurdly high cost when compared to the margin security costs required by more conventional assets, which may be as low as 10%.

Futures are designed for trading only and are not necessarily good investments. If the contract has a time limit that must be met, it can be challenging to wait for a price increase before making a trade. In other words, the Bitcoin futures contract requires that all obligations be met by the expiration date. Payment of the margin for variation or the price differential may be necessary for the parties to reach an amicable settlement. Payment for the given asset is also a possibility if both parties agree.

What factors should you weigh while deciding on a Bitcoin Futures trading platform?

The same is true for BTC futures trading, which can be carried out efficiently on several different platforms. It's possible to enter into a trading arrangement with a Bitcoin Futures exchange, but only after careful consideration of several variables. Here are some things to think about while choosing a reliable Bitcoin futures trading platform:

The Trustworthiness of the Trade

Before proceeding with the conditions of the agreement, it is crucial to learn how trustworthy the exchange platform is. You may see what other people's experiences with the exchange have been like by reading their feedback. To avoid any potential conflicts of interest, you can rest assured that the exchange will always follow the conditions of the contract.

Bank-like simplicity

The convenience of the exchange's banking options is one factor to consider when deciding which exchange is best for trading Bitcoin futures. Can you successfully make a deposit and a withdrawal request? If you borrow a contract from the exchange, you may have to put up some cash as collateral. Verify that there are no extra or unforeseen costs associated with the deal. Due to the time-sensitive nature of Bitcoin futures, an exchange that accepts a variety of payment methods is ideal.

Security

Traders looking for the best Bitcoin futures exchange should prioritize the exchange company's security measures. Your information ought to be secure. Even though you are not physically acquiring the item and so may be less concerned with its security, you should still carefully evaluate the safety of providing your payment details and other sensitive information on an exchange platform. To keep user information safe and prevent illegal access, the platform should have sophisticated encryption mechanisms.

Aid for Clients

Because of the high stakes involved in trading Bitcoin futures, it would be unwise to work with a broker who is hard to reach in the event of problems. The best Bitcoin futures market will have a way for traders to voice concerns or get questions answered. In contrast to the exchanges that are only accessible during normal business hours (often Monday through Friday), others are available to their customers at all hours of the day and night.

Which Bitcoin futures exchanges are there, and what do they offer?

Several cryptocurrency exchanges currently operate, as was previously mentioned. Below, we've provided a sampling of the exchanges where you can engage in Bitcoin futures trading. The following are some of them:

CBOE

CBOE is one of the largest and most well-known Bitcoin futures exchanges in the world. In December 2017, it launched its Bitcoin futures business.

CME

The CME Group launched its Bitcoin futures exchange in 2017. Although Bitcoin futures trading on the exchange has been going well since the Company's creation, 2019 has seen a significant increase in volume.

BitMex

Some people consider BitMex to be the best cryptocurrency exchange for buying and selling Bitcoin futures. Unfortunately, Americans can't participate in this trade.

OKEx

OKEx is a Hong Kong-based cryptocurrency exchange. Traders can utilize the platform to engage in Bitcoin Futures trading. It has wide adoption in Asia but is blocked in the United States and many other nations.

Bakkt

Many Bitcoin Futures traders are looking forward to the debut of a platform that can facilitate easy trading for all Bitcoin Futures investors. After several setbacks caused by regulatory concerns, one of the most-anticipated businesses, Bakkt, finally released its Bitcoin futures platform in September 2019.

Bitcoin's Potentially Future Rules

This is the first major change in the form of government that has occurred. Since then, a lot has happened to determine Bitcoin's asset classification in preparation for a potential Bitcoin ETF launch.

Bitcoin exchange-traded fund (ETF) applications were all rejected by the Securities and Exchange Commission (SEC). Bitcoin futures are not liquid or developed enough to enable Bitcoin ETFs, the regulatory body said in its refusal of licenses to exchange businesses. Exchange platforms like SolidX and VanEck have proposed an exchange-traded fund (ETF), but the SEC has been delaying a ruling on the matter.

Influencing aspects of Bitcoin futures trading

Some factors are crucial to think about when trading Bitcoin Futures. The potential earnings from your trading may be affected by the following variables.

Size of Agreement

The term "contract size" is used to describe the possible scope of a given contract. A trader who invests in the market with a thousand contracts at a price per contract of $1 would have a total of $1,000. A contract's value may sometimes be measured in Bitcoin or another cryptocurrency. Other fiat currencies may be used as the basis for contract values.

Lengthy or brief

The focus of short contracts is the increase and decrease of the account balance as a result of changing Bitcoin prices. If the price of Bitcoin increases, your balance will decrease. The decrease in Bitcoin has led to a higher balance. The opposite of a short contract is a long one.

Leverage

How much your balance rises or falls due to fluctuations in the market is heavily dependent on your leverage. When employing 100x leverage, your balance will increase more than it would with any other sort of leverage. 100x is the highest level of leverage that a broker offers.

Time Limitation

The last day of the contract is called the expiration date. All trades must close by this time, profit or loss. Traders can have a grace period at some markets, though.

What are the potential costs of trading Bitcoin Futures?

When trading Bitcoin futures, you may be subject to the following fees:

Investment Costs

These costs are the commissions traders must pay to buy and sell Bitcoin futures.

Overnight charges

Overnight fees are those assessed to a trader at times when contracts are left open overnight.

Costs incurred for additional time

When a contract is kept open past its due date, traders must pay this cost.

Fees for Withdrawal and Deposit

The fees associated with a trader's withdrawal or deposit on a Bitcoin futures trading platform are self-explanatory.

Repayment of Interest

The broker earns interest on a fixed percentage of the total leverage used in a trade.

Conclusion

Futures trading in BTC offers a novel trading opportunity without the need to physically acquire the asset. Traders can speculate on the price of Bitcoin and still make money thanks to the availability of Bitcoin futures exchange platforms. Traders must evaluate the efficacy and trustworthiness of an exchange platform, and this may be done through customer reviews or by testing the platforms oneself with the minimum amount required to get started.