July 16, 2019 | AtoZ Markets - No doubt, there is a considerable slice of people who know what is Bitcoin today, or heard of it at least and have an idea that it is a cryptocurrency, or a digital currency, in another naming.
But as a quick reminder, we repeat it is definition in the prologue of this article.
According to bitcoin.org, “The Bitcoin technology - the protocol and the cryptography - has a strong security track record, and the Bitcoin network is probably the biggest distributed computing project in the world. Bitcoin's most common vulnerability is in user error. Bitcoin wallet files that store the necessary private keys can be accidentally deleted, lost or stolen. This is pretty similar to physical cash stored in a digital form. Fortunately, users can employ sound security practices to protect their money or use service providers that offer good levels of security and insurance against theft or loss.”
Up until here, it is clear to us I assume, as we know, and others who do not, now do.
There is also bitcoin cash, which derived from the original bitcoin upon a hardfork.
AtoZ Markets had already dedicated its readers a lengthy article to explain the differences between Bitcoin and Bitcoin Cash.
However, in this article we are going to clarify what are Bitcoin Futures.
Understanding the term “Futures”
“Futures” is a term that was given to the purchase process; in reference to that it will take place in the future. It is an agreement between two parties to buy or sell a commodity or financial instrument, for a specific price that was agreed on, and the deal takes place on a specific day in the future.
Once the contract expires, both parties of the contract must buy and sell at the agreed price – even if the price of the underlying asset has fallen or risen over time by the time the contract expires.
This type of bitcoin contracts; Futures; serve in making profit when people speculate on the price movement of the underlying asset. They are also used to hedge against the risk of price fluctuations, and it especially helps when the underlying asset’s price is extremely volatile.
To regulate bitcoin futures contracts, one needs to check with the specialized exchanges.
From what we said above, we infer that the term “Bitcoin Futures” is not another coin that derived from the original coin. It is simply, the name that type of contracts for trading bitcoin was given.
What are Bitcoin Futures?
As a rule in the crypto venue, “Futures” should not necessarily involve commodities, but can be based on financial instruments.
Bitcoin Futures contracts allow speculation on what you think the price of Bitcoin will be in the future , and that does not require obtaining Bitcoin even. They work in exactly the same way as futures on traditional investment assets.
You can take a long position if you expect the price of Bitcoin to rise; or if you own Bitcoin, take a short position to mitigate the impact of any probable losses.
There is some kind of guarantee that emits assurance in the minds of traders here, that Bitcoin Futures can be traded on certain regulated exchanges.
However, AtoZ Markets draws the kind attention of its readers to that Bitcoin Futures still bears a risk to a specific extent, just like any other instrument to trade.
Explaining the Bitcoin Futures contract specifications
Large trading exchanges set rather high market entry barriers, affordable mostly for wealthy individuals or institutional investors. For example, a well-known trading exchange offers two-month future contracts for 5 BTC with minimum price fluctuation $5 per Bitcoin or $25 per contract and maintenance margin 50%.
The futures price is based on the Bitcoin Reference Rate, referred to as (BRR), which is an aggregated rate across major bitcoin spot exchanges between 3:00 p.m. and 4:00 p.m. London time. As they are financially settled, no real Bitcoins are involved. It means that traders can profit from Bitcoin's price movements without actually owning an asset.