We are all aware of very volatile markets and the harm they may cause to portfolios. However, this is not the case with crypto markets; unlike stock markets, where volatility may cause significant damage, volatility can provide high returns to crypto investors. DeFi exchange systems have offered many improvements and improved capabilities to encourage cryptocurrency trading. Crypto derivatives, which enable futures trading that is regarded as less hazardous and more trustworthy, are one such wonderful option given on DeFi platforms.
A futures contract is a legally binding agreement between two parties to purchase or sell a commodities item at a defined price and time in the future. The buyer of a futures contract is legally obligated to acquire the underlying asset at the stated price and date, while the seller agrees to sell the item at the same price and date. That sounds simple enough, so what’s the deal with Bitcoin futures? Is there a difference?
What is Bitcoin Futures?
Bitcoin futures contracts are the same as the previously stated futures contracts, except that they wrap around Bitcoin. To put it another way, Bitcoin Futures allow you to speculate on what you believe the price of Bitcoin will be in the future — without really holding any Bitcoin. They operate in the same manner as futures contracts on typical investment assets, except that we are discussing bitcoins instead of any other commodity or asset.
Bitcoin futures contracts, unlike coins, cannot be hacked or stolen. They are both exchange-traded and regulated. This is appealing to individuals seeking long-only exposure to Bitcoin as opposed to those merely trading the contract. This is what sets it apart from other variants.
So can you speculate on Bitcoin’s price and lock it in?
How do Bitcoin Futures Work?
Bitcoin futures enable investors to speculate on Bitcoin’s future price. When you purchase a Bitcoin futures contract, you are essentially acquiring an agreement to receive a specific quantity of Bitcoin, or an equal amount of money, at a set period.
You may wager on the direction of Bitcoin’s price by trading futures contracts. If you wish to bet on the price rising, you go “long,” which means you promise to buy the underlying asset at a specified price in the future when the contract expires.
If you wish to bet on the price falling, you go “short,” which means you take a short position and commit to selling the asset at a predetermined price when the contract expires.
Impact on profitability
Bitcoin futures are used to earn a profit by speculating on the underlying asset’s price movement. They are also used to protect against price variations, especially when the underlying asset’s price is highly volatile. Bitcoin futures are readily traded on derivative platforms such as Delta Exchange, which provides perpetual swap contracts and fixed maturity futures on bitcoin (BTC) and 50+ altcoins.
- You can invest in bitcoin without really owning any BTC.
- You can short bitcoin.
- Bitcoin futures are traded on CFTC-regulated exchanges, making them more trustworthy and profitable, particularly for institutional investors who still lack faith in existing crypto exchanges.
Unrealized gains and losses in Bitcoin futures
With this method, you may benefit by correctly anticipating that the price of Bitcoin will rise, which is known as going long, or you can profit by correctly guessing that the price will fall, which is known as going short. It’s often considered a risky trading strategy that’s better suited to experienced traders than novices. Beyond speculative purposes, Bitcoin futures may be used to magnify gains, minimize risks, profit from decreasing prices, and play the market more in-depth. Among the benefits are:
- It allows you to speculate on Bitcoin prices without really holding any Bitcoin.
- You may bet on either way of Bitcoin’s price volatility. You can use leverage to magnify risks and possible profits.
- It can be used to protect against unexpected price changes.
- With less money and more enormous profits, you may control a significant value of the control.
However, while futures may be utilized for more significant returns, they can also be a very rapid method to lose money if you are liquidated. Futures are regarded as one of the riskiest financial products. If you speculate at the wrong moment, you may be stuck with a future asset that isn’t worth it.
- Fees are usually relatively expensive.
- It cannot be used to purchase Bitcoin unless deals are completed in BTC rather than USD.
- More complex and involved than simply trading Bitcoin
- Bitcoin markets are volatile and susceptible to manipulation, which can result in liquidation.
- Leverage can be beneficial, but it can also be detrimental. Given the cryptocurrency market’s volatility, it is easy to see how a suitable position may transform into a negative one in the blink of an eye.
While we’re here, we should mention that you can purchase Bitcoin futures on Delta Exchange in minutes by opening an account, following which you must fund your Delta Exchange wallet with either bitcoins (BTC) or USDT.
So, should you be trading Bitcoin futures right now? The answer will be almost dependent on the trader’s risk tolerance, experience, and skill level. We’ve discussed the advantages of jumping on the Bitcoin bandwagon early, but we’ve also warned about the risks of investing in a new, volatile, and unpredictable market. Investors can take either short or long positions, with the former betting on a price decrease and the latter betting on a price increase.
At best, trading Bitcoin futures straight now is best suited to skilled and well-capitalized traders with some experience in volatile markets.