There are a lot of reasons to choose a Bitcoin Futures contract. For one, they offer the opportunity to participate in the rise of digital currencies like the Bitcoin. There is also a lot of speculative value associated with the future of this digital currency. However, before you choose a futures contract you should understand the risks involved.
A Futures contract is usually created between two investors who decide to purchase or sell a particular asset at a pre-determined price. The Chicago Board of Exchange (Booth) and the Chicago Mercantile Exchange(CMS) are the two bodies that operate futures. The Chicago Board of Exchange trades futures contracts and the Chicago Mercantile Exchange trades forex. The underlying asset in a Futures contract is the price of a commodity, the price of a stock, or the price of any financial instrument. In order for an investor to profit they must buy at the correct time and sell at the correct time; if they don’t do these things, they will be losing money.
When an investor enters into a futures contract, they are betting on whether or not the current price of the underlying asset will stay the same or drop. If it drops then they will make a profit. They will either pay the seller a sum of money, called a settlement price, or they can try to guess the right time to sell in order to cover themselves. Whatever they do, they must pay the correct settlement price.
Unlike options and stocks, which have certain minimum requirements, a futures contract does not need an initial margin deposit. Instead, the contracts involve no money or assets at all. Because there are no minimum requirements to enter the contract, there is also no commission to be paid. Also, since there is no minimum balance, no one can “outrun” the market and get out before the contract ends.
An important advantage to these contracts is that it is easy to determine when it is a good time to sell as well as when it is a good time to buy. Since there is no minimum balance required and no commissions to pay, the investor can accurately predict the market value of the asset. Also, since everyone is free to enter and leave the contract at any point, investors can avoid exposure to margin risks and stay within their means.
In order to determine the market value, futures contracts use the spot price at the time of the settlement, plus a small percentage. Because the futures market is open 24 hours a day, this allows anyone with access to the internet to place an order and have their money instantly transferred into their account. This is in contrast to most traditional investment vehicles, in which only large financial institutions and large institutional traders have access to the information leading up to the settlement. With a traditional investment contract, the investor may wait days or even weeks for the market to make a decision on whether to invest in the underlying instrument. By the time the decision is made, the prices may have already reached their lowest and will need to be further discounted in order for the trader to receive a profit.
With a Bitcoin contract, the trader who places the order gets instant confirmation of the investment, which is not possible if the prices are determined by large banks or brokerage firms. By using the Internet, anyone with a computer and an online account can place a trade and have the funds moved immediately. Because there are no minimum balances or commissions to pay, the spread is much smaller and spreads are frequently used by hedge funds and short-term traders. Also, because trading is done electronically, the spread can be transferred to other individuals or institutions, further lowering the barrier to entry for new participants.
While some major exchanges such as Nasdaq work with legacy systems that may not support trading on the futures market, newer exchanges such as the OTCBB and Pink Sheet allow futures and options to be traded between two different markets. Also, as many people move from traditional paper trading to trading on cryptosurfers and futures exchanges, the prices are bound to follow the trends of the markets. Traders can use a variety of tools such as indicators and moving averages to determine if the spot price is leading and if a particular asset is set to go on a profitable course. In this way, they can make good money by trading on major exchanges and shorting and going long on fundamental instruments such as stocks and bonds.
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