- What Are Bitcoin & Crypto Futures?
- How Does Futures Trading Work?
- Buying Bitcoin Futures (also called “going long” or “longing”)
- Selling Bitcoin Futures (also called “going short” or “shorting”)
- What is Bitcoin futures settlement dates?
- Do future settlements have an effect on Bitcoin’s price?
- Which online Bitcoin futures broker to choose?
What Are Bitcoin & Crypto Futures?
Crypto futures are a way to trade the future price action for crypto assets.
Bitcoin futures are the most common crypto futures, hitting the mainstream financial world around this time last year.
The Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) listed cash-settled Bitcoin futures trading products in December last year.
Cash-settled means these futures are not backed by actual Bitcoin.
When the futures contracts expire, the value is paid out to the trader in cash instead of Bitcoin.
Online broker JEX explained futures contracts in a simple fashion.
They are “an agreement to make or take a delivery of a commodity or financial instrument at a fixed date in, you guessed it, the future.”
Each futures contract contains a specified amount of the traded product.
In the example of CBOE Bitcoin futures, each futures contract contains one Bitcoin and is settled based on the Gemini crypto exchange auction price for Bitcoin.
These futures contracts (in this case, Bitcoin) can be bought or sold at will by the trader at any point within the contract time frame, as market supply and demand dictate the price of the contract and the underlying asset (Bitcoin).
So as a trader or market price speculator, futures allow you “to take futures positions, along with their risk and opportunities, without ever having to take delivery of the underlying asset,” as explained by Trade Station.
How Does Futures Trading Work?
On the CME or CBOE, or JEX, traders can earn or lose money speculating on the price of Bitcoin, without actually buying or holding the underlying asset.
Buying Bitcoin Futures (also called “going long” or “longing”)
A significant portion of futures trading involves trading these contracts multiple times between contract open and contract expiration.
Trading Bitcoin futures often involves constantly adapting to changing market sentiment, buying and selling contracts based on Bitcoin’s spot price accordingly.
For example, say a trader named Dave decided to trade those Bitcoin monthly futures several times during a November 1st – December 1st contract period (fictional for this example).
Dave could essentially buy into a Bitcoin futures contract position at any point in this time period at market price (Bitcoin’s price at the time of purchase) and then sell at any point before the December 1stexpiration, seeing either profit or loss based on Bitcoin’s spot price.
Dave would be paid out in cash depending on the profit or loss outcome.
A specific example of a trade Dave could take, could see him buying a Bitcoin futures contract at $3,100 on November 8th, and then selling on November 10th for $3,200 (if Bitcoin’s spot price rose that much in that time period), seeing a $100 profit, paid out in cash.
Although if the price instead went from $3,100 to $2,900, and Dave sold the contract at $2,900, he would only receive a payment of $2,900 back, seeing a loss of $200.
Selling Bitcoin Futures (also called “going short” or “shorting”)
Dave also has the option to short-sell Bitcoin futures. This basically means betting that Bitcoin will fall in price in the future.
When Dave short-sells a Bitcoin futures contract, it means that he borrows one Bitcoin futures contract from someone else on the exchange and sells it, hoping to buy the contract back at a lower price and keep the price difference.
This is done by the exchange, so traders do not have to individually seek out contracts to borrow and then give back later.
For example, if Bitcoin’s spot price is at $3,000 on November 3rd and Dave thinks it will fall to $2,000 by November 18th, then he would sell a Bitcoin futures short contract utilizing CME or CBOE exchange features.
If Dave sold one Bitcoin futures contract short at $3,000 on November 3rd, and the price fell to $2,000 on November 18th, he would buy the contract back and receive a cash payout of $4,000 (his initial $3,000 plus a $1,000 profit).
In the same short trade example, once Dave entered his short position at $3,000, he would be able to close that position at any point, up until the December 1st expiration.
So if Dave sold one short contract at $3,000 on November 3rd, and Bitcoin’s spot price dropped to $1,500 on November 8th, Dave could buy that contract position back at his discretion, thus ending the trade and taking home a profit of $1,500.
On the other hand, if Bitcoin’s spot price rose to $4,500, and Dave chose to end the trade, he would terminate the contract and take a loss of $1,500.
What is Bitcoin futures settlement dates?
Contract Expiration is the date at which futures contracts expire and end trading activity. “Prior to the expiration date, traders have a number of options to either close out or extend their open positions without holding the trade to expiration, but some traders will choose to hold the contract and go to settlement,” explained CME Group on their website.
Contract settlement also occurs on a specified date. CME Group explained settlement as “the fulfillment of the legal delivery obligations associated with the original contract.” Therefore, on the specified date, the amount of the underlying asset would be given to the holder of the contract, at the market price at the time of settlement.
Since CME and CBOE Bitcoin futures are cash-settled, the contract holder would receive the fiat (USD, etc.) value of the contract’s price at the time of settlement. For further info: CME Bitcoin futures settlement dates.
Do future settlements have an effect on Bitcoin’s price?
Futures of the global stock exchanges, such as NASDAQ, do have effects on the markets. Hence, it’s widespread to think that CME, and CBOE Bitcoin futures carry the same impact on Bitcoin’s price.
This is sometimes true. Looking at the Bitcoin’s chart, compared with the futures settlement dates, often there was a price action which is likely to be ahead of the settlement event, but as you will see, not always there’s such action.
The following chart shows Bitcoin’s price ahead of the June 29 (2018) CME six-month Bitcoin futures settlement.
Which online Bitcoin futures broker to choose?
If you have a interesting in trading Bitcoin, Ethereum, EOS or other cryptocurrency futures in a professional exchange, JEX Exchange would be a good choice.
It’s the leading Bitcoin futures & options trading exchange in the world.
It's official website is as follows www.jex.com
For more questions, you could find them in the following ways
Find JEX on