June 20, 2020

Futures in the crypto world

Derivatives (derivative financial instruments) have existed for several years in the crypto world. They are like “cryptocurrency securities”; the most popular are futures. And let’s compare Bitcoin futures with usual derivatives.

From risk management to speculation

Futures appeared In the traditional stock exchange to hedge against equity market risk and minimize the damage caused by volatility. If you don’t understand quite clear how futures work, you can read this explanation with examples.

But these days futures are mostly used for trading and speculation: with futures, you can get profit without owning access but only with buying and selling futures.

Cryptocurrency trading had inherited lots of things from stock exchange; so derivatives appeared in the crypto world as well. It happened in 2017 when everybody was talking about the legislative regulation of digital assets. People expected that futures will make the first cryptocurrency less volatile. But cryptocurrencies collapsed when derivatives had appeared; it was said that futures were one of the reasons for the decrease. Nowadays, this instrument is increasingly used for cryptocurrency trading: about 10 exchanges support futures. So crypto futures are converging with common derivatives.

The difference between crypto and common futures

There is no real difference between Bitcoin, oil, or gold futures. All the derivatives basically are contracts, and every asset can be the subject of the contract.

Bitcoin futures are just a little more complex than common derivatives. But they are simpler in trading. How the futures trading looks like: if you have 2 Bitcoins and you suppose a rise in the price from $9000 to $10000, you can buy futures for the price of $9000. If the price really rose, you would sell them and get a profit.

Bitcoin futures can help you earn money if the Bitcoin rate is falling, exactly like common derivatives.

The USA goes ahead

As noted by experts, Bitcoin futures are more popular in the USA. European countries are in second place. The more developed securities exchanges are in these regions, and most of cryptocurrency traders in Old and New World have experience with common assets. So they know enough about financial instruments.

Futures aren’t that popular in Russia and Asia but we still can see sales growth: more and more cryptocurrency exchanges integrate this kind of derivative. Ethereum and Monero futures have already appeared, and it will likely be more different futures during the next few years.

Equite.io helps you to control a trader’s progress with Bitcoin futures trading on two popular exchanges: Bitmex and Binance.