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All you need to know about Bitcoin Futures Contract

Dec 19, 2017

All you need to know about Bitcoin Futures Contract
Explaining Futures contract

Bitcoin mania is sweeping the populace around the globe, and the value of the Bitcoin is breaking all the records with each passing day. These are extraordinary and remarkable times not only for bitcoin but for the entire cryptocurrency world as well. With the announcement of Bitcoin Futures trading to begin on the major exchanges of the world, it is expected that the digital currency space will find more trust and legitimacy than ever before. So if you have been thinking lately about trading in Bitcoin Futures, ask yourself first that if you have sufficient information or not?

It doesn't matter what people around you think about bitcoin, the reaction of the market forces have illustrated that cryptocurrencies are here to stay. And if you are gearing up for trading in bitcoin futures, just consider that despite dramatic rise in the price of bitcoin and other cryptocurrencies, they are still in their initial years.

Here in this article we will clear your FAQs regarding Bitcoin Futures:

Futures are essentially a contract to trade assets on a precise future date at a definite price. Once a party enters into the futures agreement with the other party, both parties will have to trade at the predefined price, regardless of the market price on the date of the implementation of the contract.

The aim of this agreement is not basically to generate profit rather it works as a risk management tool. This type of agreement is frequently used in financial markets to hedge against the risks of the varying prices of the assets and value depreciations, which form a regular scenario in the market.

Futures are also employed in portfolios to maintain equilibrium during the price fluctuations in investments, where the fundamental asset is predominantly volatile. These contracts once agreed-upon are then traded on a futures exchange, which operates as a mediator.

How to use Futures Contract?

There are basically two stances that can define the working of the futures contract: long or short.

If you take a long stance, you consent to acquire an asset in the coming time at a particular price when the contract concludes. The other is the short stance where you agree to vend an asset at a definite price when the contract ends. In all veracity, both the parties are shielding themselves against the precariousness of the prices of some commodity in market.

However, there are some investors who contemplate about futures contracts rather than using it as a method of protection. These investors consciously take a long stance when the price of the goods is low. As price climbs up, the contract befits to be more precious, and the investors may perhaps evaluate to trade the contract with a different investor before it expires, at an elevated price.

Bitcoin Futures- explained

Futures cannot be simply stated as a binding agreement for the physical assets, in fact, these contracts can be used to buy and sell financial assets as well. The present Bitcoin futures contract is based on the Bitcoin price while speculators can gamble on a premonitory and possible price of Bitcoin.

Moreover, it facilitates investors to contemplate on the Bitcoin price without essentially requiring it to own the digital currency. However, it may have major consequences-

Relieve to Regulation concerns: Although Bitcoin is hugely unregulated; Bitcoin futures provide an opportunity to trade the digital asset on regulated exchanges. This good news for all who were apprehensive about the vulnerabilities in the industry, owing to lack of regulation.

Trading in Banned areas: There are many states, where trading in Bitcoin is banned. However, with the announcement of Bitcoin futures, the investors in these areas will be able to speculate on the price of Bitcoin.

How to use Bitcoin Future Contract?

A Bitcoin future Contract can be utilized on precisely same principles as futures works on the conventional financial assets.

The speculators will anticipate if the Bitcoin price will increase or decrease, and accordingly will either opt for long or short stance on a Bitcoin futures agreement.

However, there could be some exact provisions in each future contract, which might be appear convoluted and intrinsic depending on the exchange, which may define the lowest and highest price limits.

What will Bitcoin Future do to the Bitcoin Price?

The Bitcoin Futures contract in short-term may pushe the Bitcoin price uphill as it has hugely impacted the general interest in the cryptocurrency. For instance, one day after the launch of Bitcoin futures on CBOE, the price of the digital currency climbed by roughly 10% to $16,936. Similarly when CME launched the Futures contract for Bitcoin on its exchange, the price broke to $20,000 in initial hours.

However, it is hard to predict the long-term impact of this contract in the upcoming days, nonetheless, many analysts are predicting that prices may go up.

There are diverse rationales behind it:

·      Availability of Bitcoin futures on public exchanges has attracted the attention of the people who were earlier skeptical about investing because of regulation issues.

·      Institutional investors will possibly invest more in Bitcoin futures, as it seems a feasible investment option.

·      It is expected that Bitcoin Futures will provide more liquidity to the market, making trading in digital currencies much more profitable.

·      It opens the door for Bitcoin by increasing the investor base, by opening in territories where Bitcoin trading is banned.

·      It can probably make Bitcoin price less volatile.