What are Futures Markets and How They Can Affect Bitcoin?

What are Futures Markets and How They Can Affect Bitcoin?

With Bitcoin gaining worldwide attention, there is a lot of discussion and commotion about its future market. Companies, such as LedgerX, and a number of the pending derivatives productions based on Bitcoin, coming sooner than expected from Cboe and CME group, most people and speculators are scratching their head and questioning, what does futures markets for this growing Cryptocurrency?

The History of Futures Markets

Active futures markets have been working for a while back, dating back to Ancient Mesopotamia times back, around 1750 BC. The first-known derivatives market was started by Babylonian king Hammurabi. Signs of Futures trading have also been founded in Aristotle’s writing. 

The very first modern derivatives markets include the London Metal Market in early 1800s, Dojima Rice Exchange in Japan in early 1700s and Chicago Mercantile Exchange, effectively known as CME group in 1900s.

Currently, the CME group is the largest futures marketplace all across the world, and is the big name, which is bringing BTC to the world of derivatives.


Bitcoin Derivatives and Future Markets

A BTC futures contract is an agreement to sell or purchase an explicit amount of BTC, within a specific time period for a fixed price. This means that if a person purchases a BTC futures contract at a fixed price of $8,000 per BTC, the person has agreed to purchase the Bitcoin at this contracted rate, and on an agreed specific date.

The same process is followed selling as well. Future markets are quite the reverse of spot markets. It exchanges people that are traditionally used to trading Bitcoin nowadays. Normally, spot trades, the traditional type of transactions, happen immediately, however, forward agreements, such as futures contract, are arranged for a later specific date for pay out.

BTC-based futures determine their value according to the current movement of BTC’s value. These markets are closely connected with spot price markets.

Also, it is vital to note that there is no actual BTC exchanges with futures contracts.

Future market trading of Bitcoin

Bitcoin Future Markets

Over the course of a few years, a number of companies have been trying to forward derivative market trading into world of Bitcoin. Lately, people are following news of LedgerX and have been swapping millions worth of future products, based on Bitcoin.

Furthermore, observers have seen the world’s two largest option markets, CME Group and Cboe, in an attempt to build their future options around the Bitcoin economy. Several people are curious as to how these different types of trading market will be affecting the Bitcoin’s volatility and price in the future.

Futures and Spot Trading: Making Profits

Now, various people may wonder what’s the profit in for traders that agree to buy an asset in future, using a contract. The motive behind it is that organizations and individuals may gain a lot of profit off this arbitrage, or by taking an advantage of spread between the current and future market prices.

BTC value is always bound to a different value in the future. For example, a person may gain profit by using a method known as ‘cash-and-carry-arbitrage.’ This means an individual may take a long positioning using BTC spot markets and short positioning in BTC-based futures. This same person can purchase BTC at $8,000 spot and Bitcoin-based futures contract at $9,000 and trade the contract before it is expired.

If Bitcoin’s price reached $10,000 by end of contract period, you gained $1000, just for taking a risk. Alternatively, the individual may also lose money, if BTC’s value went below $8,000 by the end of contract.

Bitcoin Trading in Future

Every Product, Stock and Commodity being played on Derivatives Markets

Several people think that the futures markets might prove to be advantage for Bitcoin, as it can streamline the more conventional publicity. Observers even speculate that it might help BTC’s value volatility, as it is being assumed that other people are taking on a risk & reward aspect off an unsettled buyers’ market.

Some individuals do not like the derivatives markets and assume that it is no less than a roulette game. Some Sceptics also believe that futures are similar to placing wagers on a horse race, however, nowadays, every single world bond, stock, debt commodity and nowadays Bitcoin are also being traded on this roulette table.

Due to the futures and spot markets being so tangled, people believe that they can be influenced. For example, people purchasing futures may also be buying Bitcoin at spot markets to make further gains. While others may be playing futures markets, as they might have predicted a ‘big Bitcoin whale’ might come across them next month.

What you think about Future Market trading of Bitcoin. Please leave a comment in the comment section below.

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