What to expect from bitcoin futures
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An additional characteristic of Bitcoin futures is that you can often access the market with a small amount of capital.
How are Bitcoin Futures Priced?
This is because you can buy or sell Bitcoin futures on margin. For those unaware, margin allows you to trade with more than you have in your brokerage account. It acts as a security deposit, meaning that you can lose it in full if your trade goes against you by a certain amount. There is often a misconception that you need to hold onto a Bitcoin futures contract until it expires. As long as you are trading American-style options, you can cash out your position at any given time.
More on this shortly. Although I have already given you an overview of how Bitcoin futures work — alongside a simplified example, it is important to go a little bit more in depth about the specifics. Once again, this is because futures are complex financial instruments, so it is absolutely crucial that you know what you are doing before parting with your money.
First and foremost, you need to understand when the Bitcoin futures expire. In the traditional futures scene, contracts usually last for 3 months and are settled on the third Friday of the respective month. But, it is also possible to trade Bitcoin futures with a shorter duration of 1 week. Additionally, I have also seen Bitcoin futures with a 6-month expiry. Furthermore, you can actually purchase a futures contract while it is still active.
The strike price is the price of the futures contract set by the markets. In simple terms, this is the mid-point of the contract — meaning you need to determine whether the price of Bitcoin will finish higher or lower than this price. The strike price will always be different from the current value of Bitcoin.
Learn about Bitcoin futures and options at CME Group, including contract specifications, benefits of trading and more. Bitcoin futures allow investors to gain exposure to Bitcoin without having to hold the underlying cryptocurrency. Like a futures contract for a commodity or stock index, Bitcoin futures allow investors to speculate on the future price of Bitcoin.
It is important to note that the strike price itself is determined on a demand and supply basis. That is to say, the exchange hosting the Bitcoin futures market has no say in what the contracts are priced at. Once you know the contract expiry date and the strike price — you then need to determine whether you want to go long or short. To reiterate, going long means that you think the futures contract will expire at a higher price than the strike price. And, going short means the opposite — meaning you think the price of Bitcoin will finish lower than the strike price.
Bitcoin futures launch to test Ether’s spectacular rise
As I briefly noted earlier, American futures contracts are what you should focus on — as they allow you to exit your position at any given time. Well, at any point between the time you buy the futures contract and the date in which they expire. Now, the value of your futures contract will change on a second-by-second basis. This is no different from buying Bitcoin in the traditional sense or trading it via CFDs.
However, the value of the futures contract is based on what the markets believe the price will be at the point of expiry. On the other hand, European futures contracts do not afford you the luxury of cashing out before they expire. Instead, your fate is only determined at the point of expiry.
I would suggest avoiding European-style Bitcoin futures as there is no way for you to mitigate your risk. That is to say, your losses are virtually unlimited in the event that the trade goes against you by a considerable amount. This is where things start to get a bit complex.
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The value of a Bitcoin futures contract is usually determined in BTC. The good news is that there are a small selection of platforms that are suitable for retail clients that wish to stake smaller amounts. This allows you to give Bitcoin futures trading a try without risking a consequential amount of money. There are several ways in which you can calculate your profits and losses when trading Bitcoin futures.
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By using the above calculations to quantify your profits and losses, the number of Bitcoin futures that you hold is somewhat irrelevant. After all, platforms like Kraken price the contracts in US dollars as opposed to BTC, which is far easier when it comes to assessing your potential gains.
In a similar nature to CFDs, most Bitcoin futures markets allow you to trade on margin. This allows you to stake a lot more than you have available in your brokerage account. In simple terms, this means that you can amplify your stake by 50x. In fact, applying this much leverage is super high-risk. This is because you always stand the chance of having your trade liquidated. This is when your trade goes against you by more than you put forward in margin. The only way to avoid this is to add more funds to your margin account.
This usually comes in the form of an email. I am hoping that you now have a firm understanding of what Bitcoin futures are, how they work, and what risks you need to consider before taking the plunge. If this is the case and you are keen to explore the phenomenon further, below I discuss the best platforms to do this with. I think that hands down — Kraken is the best cryptocurrency platform to trade Bitcoin futures. This is especially useful if you are new to the Bitcoin futures scene and want to start off with small amounts.
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The platform offers two types of futures markets — perpetual and fixed-maturity. The former means that the futures never expire, so they are more congruent with CFDs.
The latter has a fixed expiry date. You can choose from weekly, monthly, or bi-annual contracts — which gives you plenty of flexibility. In terms of fees, Bitcoin futures at Kraken are charged on settlement. This is a variable fee that starts at 0. But, Kraken still makes lots of money as the trading volume on its Bitcoin futures markets is significant. On top of Bitcoin, Kraken also offers a number of other cryptocurrency-denominated futures contracts. When it comes to getting started at Kraken, you can easily deposit funds via bank wire.
If you want to deposit funds via bank transfer, you will need to first go through a KYC process. Trade futures on Kraken.
An additional platform that is looking to compete in the ever-growing Bitcoin futures scene is Deribit. Much like Kraken, you can trade Bitcoin futures at a settlement fee of just 0.
If history is anything to go by, the tulip bubble burst in February — not long after the Dutch created a futures market for buying bulbs in at the peak of tulip mania. The exchange platform i. While some of the top cryptocurrency exchanges are, indeed, based in the United States i. I write about digital assets trends and ideate the Forbes Digital Assets tools and functionality being rolled out. JPMorgan estimates that initial volumes in Ethereum futures are likely to be low, much like bitcoin in the early days, but this will change quickly. That is to say, your losses are virtually unlimited in the event that the trade goes against you by a considerable amount. Send me a secure tip.
As Deribit does not support fiat currency deposits, this does make it somewhat cumbersome if you do not currently have Bitcoin to hand. In terms of leverage, Deribit offers twice the amount of Kraken at x. However, I would strongly advise against trading with this much leverage as there is every likelihood you will be liquidated. I should also note that Deribit offers Bitcoin options. This is another trading angle to consider when speculating on the future value of Bitcoin. Trade futures on Deribit.
You can use up to a whopping x leverage when trading futures on Binance. Follow these steps to start trading on the Binance Futures platform:. Trade futures on Binance. LedgerX is a US-based cryptocurrency derivative platform that offers Bitcoin futures and options. The stand-out selling point with this platform is that it is licensed by the U. Commodity Futures Trading Commission.