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Bitcoin Futures, Here Is What You Need To Know

Updated on February 22, 2018
Maryam Nasrullah profile image

Maryam is an entrepreneur, author, freelance writer, and content marketing specialist with more than 5 years of professional experience.

The Chicago Mercantile Exchange is one of the largest exchange groups in the world has announced that they are going to lunch Bitcoin Futures. Now, this is a very bittersweet moment for many. We know that Bitcoin futures are going to bring some really big benefits for the Crypto currency traders and investors.

But there is also some big risks and some potential massive downsides. In this article, we are going to explore some pros and cons of bitcoin futures.

CME-Group-to-Launch-Bitcoin-Future | Source

History of Bitcoin Futures

This started with Japanese rice farmers in the 1700s. It was a way for the farmers to lock in a price. They know that they have a guaranteed sell on their crop in the future. It will allow them to hedge that. This method morphed over into the U.S in the mid-1800s. Then the wheat and corn farmers started using that in the U.S and now this method has been revolutionized for the financial market.

What Are Bitcoin Futures?

If you have read about equity options or you trade them then you can easily understand Bitcoin futures. The Bitcoin Futures are very similar to the existing equity trading options except futures don’t have any time decay. What that means is the price of the contract does not change based on the amount of time that goes by. This is the great part about the futures.

What Is a Futures Contract?

This is the subject that really confuses intimidates a lot of people but it’s actually very simple. I would say that it’s probably simpler than trading traditional equities or stock. Here a futures contract is

  • An agreement to buy or sell something at today’s price to be delivered in the future.
  • These are very liquid, there is no time decay and it gives you a lot of leverage.
  • The Bitcoin futures are going to be designed for bigger investors. Because they are highly leveraged products and you do need to have a margin account in order to these products.

Why You Should Invest In Bitcoin Futures?

There are many reasons why you should invest in Bitcoin futures. Let’s take a look at some of these


Better Options for U.S Traders To Short And Use Leverage

The first and one of the biggest one that I see is it’s going to give U.S traders and Investors a much better option for shorting and using leverage. As we have seen over the past couple of years many of the biggest cryptocurrency exchanges have actually stopped accepting U.S customers. This is due to all the regulations that they have in the U.S. So, this is going to give U.S traders a really reliable option for being able to short the market and use leverage.

Better Order Execution

The second big benefit to this is that it’s going to give all traders that use these future contracts much better order execution. For anybody who has been trading cryptocurrencies for the past couple of years, you know that a lot of these exchanges when volatility kicks in their websites lock up. Or sometimes you can’t get your orders filled. If it’s been a really bad experience for you for the past few years then Bitcoin futures are going to be amazing for you.

Bring More Awareness To Crypto Currencies

The bitcoin futures are going to bring more awareness to the Crypto currencies. Not in just general public but also big institutional investors. So, this is going to be a next big thing in the crypto currencies.

Some Risks Associated With Bitcoin Futures

Now let’s talk about some downsides of Bitcoin futures. Before investing in these you should know these risks as well.

Manipulation from Wall Street Firms

The first and kind of most glaring that I see is that it opens up room for potential manipulation from big Wall Street Firms. Because the Bitcoins futures contracts are going to be settled in cash meaning that you can’t actually take physical delivery of Bitcoin. It just opens a lot of manipulation.

CME Futures Price Relies On Price Data from Other Exchanges

CME prices also rely on data from other exchanges. According to latest reports on Bloomberg, the Bitcoin exchanges that CME uses for futures is down. They have sued Kraken as one of their exchanges. Historically this exchanges is known to be one of the worst trading platforms out there. But they are also going to use the price data from other exchanges as well. So, we’ll have to see how this plays out.

Some Final Thoughts on The Bitcoin Futures

  • Be careful when using leverage
  • If you trade futures without a solid risk management strategy you will get destroyed
  • If you day trade futures when volatility is low your account will have death by 1000 cuts.

In conclusion, we are going to see higher volatility after the Bitcoin futures contracts launch. Which I think is really interesting because just a few weeks ago CME group said that they are going to make it tame into a regular type of instrument. If the futures contracts launch and everything goes as planned this is going to open an opportunity for even more Crypto financial derivatives.

What do you think about the Bitcoin Futures? Let me know what you think in the comments below. Share this Hub with the friends if you got value from it.

© 2017 Maryam Nasrullah


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