Futures contracts are a type of derivative financial instruments that allow speculating on the price movements of commodities, stock indices or cryptocurrencies. For example, in the case of BTC, by buying a futures contract, you can benefit from its price growth without having to buy and hold BTC in your wallet.
However, before you start speculating futures, you need to understand how does crypto futures work, for these contracts come with a number of rights and obligations.
Crypto Futures in Simple Words
During crypto futures trading, the buyer undertakes to buy and receive the underlying asset at the expiration of the futures contract. The seller undertakes to provide and deliver the underlying asset on the specified date. If you buy a futures contract and the expiration date arrives, the contract will be liquidated, and you will be given the corresponding amount of BTC at a price specified in the contract.
An example of crypto futures trading:
- In March 2022, you bought a BTC futures contract with an expiration date of June 2022 with the price fixed at $36,000.
- By June 2022, the contract is settled, so you are provided with BTC at a price of $36,000.
- If the June price of BTC is higher than the price of the contract, you make a profit. If not, you bear losses. In this particular case, you would bear a loss of $6,000 since BTC was around $30,000 in early June.
A Brief History of Crypto Futures
The first BTC futures was traded on December 10, 2017. Chicago Board Options Exchange (CBOE) was the first crypto futures platform. In the first hours, the influx to the exchange was so big that servers could not handle it, and the site became unavailable for a while.
Crypto futures have been available for five years now, and their demand is growing. For example, on the WhiteBIT exchange, you can trade crypto futures leverage. This feature increases the potential profit, but, at the same time, the risks grow too. Therefore, before you start trading crypto contracts, make sure to study all the nuances of this trading type. It will save your deposit and allow you to earn in the dynamic digital coin market.