The Benefits Of BTC Futures Trading

Bitcoin is a very volatile currency, meaning that its value fluctuates quite a bit. With BTC futures trading, the trader can bet on the future bitcoin price without actually having to buy bitcoins. So, what are the benefits of using Bitcoin Futures?

What are BTC Futures?

BTC futures are a derivative product that allow traders to speculate on the price of Bitcoin. They provide a way for hedgers, speculators, and arbitrageurs to gain exposure to the digital currency while limiting their risk.

The contracts are settled in Bitcoin, allowing for immediate market transparency. This is important because it allows traders to more accurately gauge the price of Bitcoin and minimize potential mistakes.

Since BTC futures were introduced in December 2017, the market has seen significant volatility. However, this is likely due to the fact that there is still very little understanding of how they work. Over time, we expect this volatility to dissipate as traders learn more about BTC futures and their implications.

The Advantages of Bitcoin Futures trading

BTC futures tradingoffers many advantages for investors and traders. Here are five of the most significant benefits:

1. Greater liquidity: Traders who use futures contracts to invest in bitcoin can access a much larger and more diverse range of prices than those who buy or sell directly from miners or other exchanges. This greater liquidity makes it easier to find an acceptable price for a bitcoin position, and to exit the position if the price moves against you.

2. Greater precision: Futures contracts allow investors to purchase or sell bitcoin at a predetermined price on a specific date in the future. This allows them to lock in a price before the bitcoin actually exchanges hands, which gives them greater predictability and control over their investment.

3. Greater security: Bitcoin futures contracts are backed by real bitcoins, meaning that they have value if and when they eventually exchange hands. This security feature reduces the risk of losing money in a bitcoin bear market, as well as the risk of being forced to liquidate a position at an unfavorable price.

4. Reduced execution costs: Because futures contracts are standardized agreements between buyers and sellers, there is little risk of fraud or manipulation. This reduces the amount of fees that must be paid for each transaction, making trading more cost-effective than with bitcoin in its natural form.

5. Lower market volatility: Bitcoin futures contracts are expected to be less volatile than the underlying cryptocurrency. This means that contracts will typically keep prices closer to the asset’s actual value, reducing the risk of losses for traders who may not have a lot of experience in cryptocurrency trading.

How Crypto Futures Work on Regulated Exchanges

Consider the following example for a CME Group Bitcoin futures contract. Suppose an investor purchases two Bitcoin futures contracts totaling 10 bitcoin. The price of a single bitcoin when the futures contract was purchased was $5,000 each, totaling $50,000 for both futures contracts. The margin requirement for Bitcoin futures trading at CME is 50% of the contract amount, meaning that the investor has to deposit $25,000 as margin. They can finance the rest of the contract purchase by using leverage.

The contract’s value varies based on the underlying asset’s price (i.e., Bitcoin). CME uses the Bitcoin Reference Rate, which is the volume-weighted average price for Bitcoin sourced from multiple exchanges and is calculated daily between 3 p.m. and 4 p.m. London time.

Depending on Bitcoin’s price fluctuations, the investor can either hold onto the futures contracts or sell them to another party. At the end of their contracts’ duration, the investor has the option to either roll them over to new ones or let them expire and collect the cash settlement due.

The steps to conduct trade in Bitcoin futures are the same as those for a regular futures contract. You begin by setting up an account with the brokerage or exchange where you plan to trade. Once your account is approved, you will need another approval to start futures trading from the trading service provider. Generally, the latter approval is a function of funding requirements and the account holder’s experience with derivatives trading.

The same criteria also play an essential role in determining leverage and margin amounts for your trade. Futures trading makes heavy use of leverage to execute trades. Government agencies regulate the maximum leverage amount allowed at regulated exchanges and trading venues.

Trading Platforms for Bitcoin Futures

There are a number of BTC futures trading platforms available to traders. One of the most popular This platform offer traders access to a variety of contracts, including monthly contracts, weekly contracts, and daily contracts. They also provide margin and leverage options, which can help you make more profitable trades.

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