The Bitcoin futures contract offers an alternative investment opportunity for crypto investors.
A futures contract is a more complex product than purchasing Bitcoin directly. A thorough understanding of the mechanism is necessary to conduct safe and reliable transactions.
The entry barrier for Bitcoin Futures Contracts is relatively high (as it requires more knowledge and experience). This article provides fundamental knowledge and strategies for future trading and how to execute safe and reliable transactions.
What is a Bitcoin Futures Contract?
A Bitcoin Futures Contract is a derivative product similar to traditional futures contracts. It is an agreement between two parties to buy or sell a specific amount of Bitcoin at a specified future time.
Each futures transaction will include long (agree to purchase) and short positions (agree to sell). If a buyer goes long on a Bitcoin futures contract and the marked price is above the forward Price at the expiration date, the buyer will profit, and the short position will suffer a loss.
If the marked price is below the forward price at expiration, you will lose money and the short position profits.
Here is an example of a Bitcoin futures transaction: Imagine a buyer has purchased ten futures contracts right now, and the expiration date is one month later.
Amount of Bitcoin Futures Contracts purchased: 10
Marked Price on the futures contract — USD 40,000
Forward Price at the expiration date — USD 45,000
Total profit earned by the buyer (go long) or profit loss of the seller (go short)
10x(45,000–40,000)= $50,000 USD
How do they make and lose money in futures transactions? The buyer can buy 10 Bitcoins from the seller at the expiration date for USD 40,000 each.
The current market price is USD 45,000. The buyer can buy 10 Bitcoins at a lower price than the market price and resell them at the market price to make a profit. The seller is forced to sell 10 Bitcoins at a discount due to the future contract signed. If the marked price is below the forward Price at the expiration date, you will lose money, and the short position profits like below:
Amount of Bitcoin Futures Contracts purchased: 10
Marked Price on the futures contract — USD 40,000
Forward Price at the expiration date — USD 35,000
Total profit loss by the buyer (go long) or profit earned by the seller (go short)
10x(40,000–35,000)= $50,000 USD
At the expiration date, the buyer is forced to buy 10 Bitcoins from the seller at a higher price of USD 40,000 each, but the current market price is only USD 35,000.
The seller can sell 10 Bitcoins at a higher price, which is USD 5,000 higher than the current market price for each, due to the future contract signed. That’s how Bitcoin futures investors make money.
What is the Bitcoin Futures Contract for?
Some investors may use Bitcoin Futures Contracts for speculative purposes. They may make a significant profit if they accurately predict market movements. It involves multiple and complex trading strategies that are not suitable for investment newbies.
Reduce the risk of volatility
But the primary purpose of the Bitcoin Futures Contract is to manage risk. Both buyers and sellers can purchase a certain amount of Bitcoins by locking them up at a fixed price in the future. It aims to reduce the risk of price volatility for Bitcoins. This process is called “hedging.”
Futures contracts have been a hedge for a long time, such as commodity markets like oil and rice. The Price of oil and rice may be influenced by war, climate, or political reasons.
To reduce the risk of volatility, buyers and sellers often agree on a fixed transaction price and quantity by setting up futures contracts. Sellers need stable earnings to cover costs, while buyers must purchase at a steady price and quantity to fulfill their needs.
Similar to sellers in the commodity market, Bitcoin miners may take a short position to secure the value of the Bitcoin they mined. They need to cover the mining costs spent on electricity and hardware.
Diversification
Investors can diversify their portfolios by executing Bitcoin Futures Transactions. This allows for creating a well-balanced portfolio of various coins and products.
Ready to try Bitcoin Futures transactions?
BitMake can be the leading crypto derivatives trading platform with multiple innovative products, including Bitcoin Futures Contracts.
Responsible Leverage
BitMake users can conveniently increase their returns using up to a 125x leverage for bitcoin and ethereum.
“More volatile assets will have lower leverage levels in the future to reduce traders’ exposure to extreme price movements as the futures trading lists on BitMake is not exhaustive.”Simultaneously, we strictly require users to comply with our margin requirements and introduce risk margins to help users better resist liquidation risks.
Daily Converting
Another unique feature of BitMake is that they conducts daily automatic position settlement at UTC 0:00, which means its automatically converting unrealized profits and losses of current positions into realized profits and losses.
How to start?
If you want to start trading Bitcoin futures on Bitmake, you need to set up an account and acquire some funds. Here’s the step-by-step guide to start trading Bitcoin futures contracts:
- Create an account on BitMake.
- Purchase some BTC, Tether (USDT), or other supported cryptocurrencies for futures trading.
- Navigate on the top to futures and then check the bitcoin chart.
- Before opening a position, if there are no assets in your Trading Futures account, you can click on the “Transfer” function to transfer crypto from other accounts to the Futures account. There is no fee for internal transfers.
- After selecting the trading pair, margin mode, order type, and leverage, enter the price and quantity and select the direction to place an order.
In conclusion, BitMake offers a user-friendly platform for trading Bitcoin futures contracts and other crypto derivatives. With a strong focus on security, liquidity, and responsible leverage, Bitmake is committed to helping experienced, and novice traders navigate the complex world of crypto trading.
The article is from TheLuWizz.
Original link: https://medium.com/the-crypto-paper/welcome-to-bitmake-the-worlds-fastest-growing-crypto-derivatives-trading-platform-9f4b5a551dad
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