Bitcoin Futures: basic guide

Today’s cryptocurrency market is young and volatile. Cryptocurrencies have no backing, as such their value is not attached to a physical asset in fact. Their prices are, by and large, speculative meaning they are highly dependable on news and people talking about them. In an effort to bring stability to the market, CBOE and CME, world’s largest derivatives exchanges, decided to introduce Bitcoin futures.

What futures are

When you get into a futures contract, you bet whether the asset’s value goes up or down. A futures contract is an agreement between two parties to buy or sell a certain asset at an agreed price at a specific point in future.

When two parties enter a futures contract, one of them takes, what we call, the long position and the other goes short. If you think that the market price of the asset will be higher than the agreed price, you go long. And if your prediction is true, you will profit by buying the asset at a lower price. If your guess is that the asset will cost cheaper than the agreed price, you go short. If it turns out true, you will make money by selling the asset higher than its actual market price.

Futures are a tool for companies to manage risks. Imagine, you have a factory. Your factory consumes a lot of power. You predict that the cost of electricity goes up next month. You offer your power supplier to make a futures contract. According to this contract, next month you will pay for electricity at the current rate. If your supplier thinks that the cost of electricity will go down, they agree. Now you both enter a futures contract: you go long, your supplier goes short. At the expiry date of the contract, you pay for the supplied electricity at the previous month’s rate. And if the cost of electricity did go up during that time, you win.

How Bitcoin futures work

The first and most important thing to know about Bitcoin futures is that they are settled in cash. When Bitcoin futures expire, no actual bitcoins change hands. The losing party in a futures contract pays the winner the difference between the agreed price (the price of a bitcoin when the contract was initiated) and the current price of bitcoin. So the bitcoin market and the bitcoin futures market are completely separate.

Each exchange sets their own standards for their contracts, such as expiry dates and the amount of bitcoins per contract (1 bitcoin on CBOE, 5 bitcoins on CME). What it does is that you can exit a bitcoin futures contract by taking the opposite position in another contract. You will not have to deliver anything to anyone because both your contracts cancelled each other out.

How do I earn money?

Exchanges give you a chance to make money without paying the full price of future contracts. You will cover a portion of a contract yourself and the exchange will lend you the rest of the money to buy a full contract. The amount of money you will need to cover your portion is called an initial margin, and the money you borrow from the exchange is the leverage.

Let’s say you want to start trading on CBOE. Their initial margin for a contract is 44%. And if we suppose that a bitcoin’s price is $1000, and the CBOE’s contracts are standardized at one bitcoin, you will have to add $440 to your account to buy a contract because the exchange will lend you the remaining $560 (1000 - 440). Now you have a contract that is worth $1000 because it stands for one bitcoin, which is at $1000.

Suppose bitcoin went up to $1200. Now you call sell your contract at $1200 and give back the borrowed $560. You end up with $640 (1200 - 560) and, considering that you started with $440, you have just earned $200 (640 - 440).

Of course, in reality it is a bit messier than that because we are ignoring exchange fees for ease of understanding but this should give you a general idea of how you can earn on future bitcoins.


They say: 'buy low and sell high™, and remember: futures market is a zero-sum game meaning for every loser there is a winner, and for every dollar lost there is a dollar found.'


All the articles are based on personal opinions of their authors. neither supports nor opposes any project or strategy. The authors may invest their own funds, and any piece of information shouldn't be considered as investment recommendations. Before taking decisions, users must consider all relevant risk factors including their own personal financial situation.


8,744 USD 0.38%
Volume, 24h
3,497,717,274 USD
153,922,072,217 USD

Related news

Trader Analyzes How Ripple’s XRP Price Could Hit $8 If This Trend Breaks

In a recent tweet on the 17th of October 2019, an avid cryptocurrency trader shares his opinion about Ripple’s XRP. According to him, XRP could hit $8 per coin if the price breaks forth to the upside of its current trading triangle. XRP Could Moon Soon An avid cryptocurrency trader by the username @XRPMOONSHINE, known for his analysis on XRP, shared his thoughts about the coin in the early hours of Wednesday. According to his point of view, XRP, which has been trading within a triangle for some time, could see an imminent breakout. He further proceeded to predict a price of $8 if price breaks to the upside of the triangle. His opinion is based upon on a weekly chart he shared – a view of price movement between 2016 till date. This is what $8 PER XRP Would look like. Does not seem like a possible reality to some. Just wait until this weekly triangle from 2016 to Now Breaks to the upside. — Løver øf All Cryptø (@XRPMOONSHINE) October 17, 2019 Twitter Lightens Up His tweet seems to have brought back lost hope in the cryptocurrency for its holders, as a lot of people seem to agree with his view — also, there were those who think this feat would be difficult to attain. Alex Cobb, one of many who commented, threw an important question to the floor, asking if the Brad Garlinghouse-led Ripple Inc. could make immense positive announcements that could help boost the growth of XRP. The question is, is Ripple genius enough to time a huge announcement while XRP is coming to the end of a massive triangle? — Alex Cobb [Don’t fall for fake profile scams] (@AlexCobb_) October 17, 2019 What Are Up Ripple’s Sleeves? Ripple and its cryptocurrency, the XRP, have received a lot of attention lately. This is due to various partnerships and acquisitions the company behind XRP has made. That’s not all; the community awaits MoneyGram’s announcement at the SWELL 2019 conference. As announced by Ripple, MoneyGram’s CEO, Alexander Holmes, will share his experience about how Ripple’s product, the xRapid, has transformed the financial giant and what lies ahead for the future of cross-border payments. The post Trader Analyzes How Ripple’s XRP Price Could Hit $8 If This Trend Breaks appeared first on ZyCrypto.

HTC Launches Blockchain Phone With Full Bitcoin Node

The recognized electronic manufacturer HTC launched a new blockchain phone with Bitcoin (BTC) network support. The Exodus 1 will allow users to run a full Bitcoin node and […] The post HTC Launches Blockchain Phone With Full Bitcoin Node appeared first on UseTheBitcoin.
Use The Bitcoin

Hot news

By continuing to browse, you agree to the use of cookies. Read Privacy Policy to know more or withdraw your consent.