Bitcoin is relatively well-known now but recently, Bitcoin futures have been added into the mix. These futures are an important development in the market as they indicate that the volatility of the cryptocurrency market will be balanced and more people will have the confidence to invest.
Futures are a contractual agreement to buy or sell at a future date for a particular price, regardless of what the market value might be on the actual day.
Futures are used for risk management to hedge against the risk of changing prices. As the Bitcoin market is often quite volatile, this is a good way to balance a portfolio.
Futures contracts are usually negotiated and traded on a futures exchange website.
However, futures aren’t just for physical assets; they can also be traded on financial assets too.
You take a long position when you agree to buy at a particular price when the contract expires and a short position when you agree to sell.
However, if you are taking a long position and the prices go up, you might choose to trade the contract with another investor before it expires. This gives you an opportunity to profit further on your contract, but it is a risk as you will often need to take out a longer contract.
In Bitcoin futures, the contract is based on the price of Bitcoin. Furthermore, speculators may place a ‘bet’ on their projection for the price of Bitcoin in the future. Speculators don’t need to own any Bitcoin to do this.
Though Bitcoin itself is unregulated, Bitcoin futures may be traded on regulated exchanges. This is reassuring for those concerned about the risks of the cryptocurrency industry. Bitcoin futures may also be traded where trading in Bitcoin is banned.
Initially, futures caused the price of Bitcoin to jump and in general, it can be said that futures boost the interest in cryptocurrency, therefore increasing the price.
There are several other reasons that the price is likely to go up too:
● Bitcoin futures are regulated on public exchanges which gives previously skeptical people more confidence in the market
● Institutional investors are gaining confidence in offering Bitcoin futures to their clients
● Futures are introducing better liquidity to the market is easier to trade cryptocurrency
● Futures open up the market to a wider investment base where Bitcoin trading is banned
● The volatility of the market is balanced using futures
You can trade cryptocurrency on two separate markets.
There are a wide range of cryptocurrency exchanges, all offering slightly different platforms and exchange rates. Sites like Buy & Trade Crypto are a good place to start looking. Many of these sites also offer the option to trade Bitcoin futures, though it remains largely unregulated.
These exchanges are a recent development in the cryptocurrency industry and may be why Bitcoin prices suddenly rose in December.
More people are confident in trading on these exchanges and the market is strengthening as a result.
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