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We know that the bitcoin the popular cryptocurrency often meets price fluctuation, and it results in a huge effect on trading network particularly on exchanges. So by realizing this as a risk factor people often gets diverted to other trading industry and refuses to invest in bitcoin. Entire cryptocurrency network often invents new business model and trading techniques to diminish the risk factors of trading a bitcoin, And hence a new risk management tool has invented to the cryptocurrency network! want to know whats that?
"Futures" the term simply denotes an agreement between two parties to buy or sell an asset at an agreed price, on a Specific Contract date, irrespective of the actual market value.
This type of contract system often used in financial marketplaces to overcome the risk of changing prices of a particular physical asset. The same system now has implemented on bitcoin and blockchain technology too.
The core concept of bitcoin futures contracts is not to acquire profit, but to regulate the bitcoin trading for a particular period.
How does a bitcoin futures contract work?
With bitcoin futures, the contract will be executed based on the bitcoin price. it has two different positions, one is long term position and another one is short-term positions.
When you choose a long-term position, you agreed to buy a bitcoin on a specific date at a fixed price. And when you choose a short-term position, you agreed to sell bitcoin physical asset on a specific date at a fixed price.
Sellers would happily enter into futures contract in order proceed a steady market for bitcoin, even at the peak time of its price. Futures contracts benefits both the parties to protect themselves against the volatility of bitcoin price.Investors can speculate on the bitcoin price, without actually owning a bitcoin.
A speculator can choose long or short positions by anticipating whether the bitcoin price goes up or down.
If a person A own a bitcoin priced at $12000(hypothetically) and he sells bitcoin futures contract at the current market rate (i.e $12,000) by speculating that the bitcoin price will drop in future.
Close to the settlement date of a contract, The price of bitcoin drops along with the price of the futures contract, then the investors can decide to buy back the contract at a low price.
If the price of bitcoin is close to $10,00 then he would save around $2000.
Selling at high and buying at low price.
Will the futures contract will effect on bitcoin price and for exchange websites growth?
Of course, it will affect both the bitcoin price and also the exchange websites.
To clarify you,
The price of-of bitcoin jumped at a rate of 10% that is around $16,000 when CBOE (Chicago Board Options Exchange ) launched its Bitcoin Future Contract.
The only markets where the bitcoin future contracts traded are bitcoin exchanges. So people will automatically jump into trading websites to avoid the risks of trading the bitcoins.
If you have a plan to start a bitcoin exchange, ensure whether you have write down bitcoin futures contract as one of your business models.
Greetings! This is Dheivanai! My love for writing transformed me as a blogger and the Passion for Crypto industry turned me as a business advisor at bitdeal. Crazy towards digging deep and analyze the new trends in the Cryptocurrency and Blockchain Industry. Follow us to read interesting and existing blogs! Stay tuned, Stay updated!
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