Before talking about Bitcoin Futures, that is Bitcoin in Future markets, we would rather discuss the Future market itself, in order to have a wider outlook on the topic.
Future contracts include purchasing an asset class at a specific price in a future settled date & point of price, where the actual value of the contract depends on the price of the asset itself. These kind of contacts are tradeable in a market referred to as the Futures market.
A Future contract of an asset class contains underlying information regarding the asset class, such as the purchase size, final trading day, maturity date and exchange on which the contract is being bought or sold. These contracts are NOT set automatically, that is to say, they only can be purchased bilaterally, meaning that one side goes long on an asset class whilst another partner from around the globe takes the short side of it.
At the expiry time of a futures contract, no matter the settlement was physical, in the case of commodities, or via a cash settlement in the case of Bitcoin, yet the futures contracts are likely to be transferred many times before expiry. We must keep in mind that the futures market is used by investors who want to hedge exposures to a particular instrument or by speculators who can guess an asset future value based on their analysis.
For investors looking to hedge, this market is a proper solution to protect themselves against the future price fluctuations, that is the investor can purchase a contract of an asset now in order not to be exposed to the possible rise (for buyers) or declines (for sellers) of the price.
On the opposite side of investors or companies looking to hedge exposures, speculators will be looking to benefit from the price fluctuations of an asset class without having a physical exposure to the asset class. The motivation for a speculator is to profit from the general price value of contracts.
- Hedgers can go either long or short. Short positions are taken to secure a price now in order to protect the hedger from declining prices in the future, while long positions protect against rising prices in the future.
- Speculators go short on the expectation of prices falling in the future while going long on the assumption that prices will be on the rise.
Now that Bitcoin exist since 2009 and accessible by investors as well as the great companies on the U.S equity markets, it is regarded as a big evolution in the Futures market in all over the world, since it offers an easily reachable bilateral market for all kinds of investors.
This great market is growing more and more and has experienced remarkable evolution such as the foundation of The Cboe futures exchange on 10th December 2017 which provides investors with greater liquidity, transparency and an efficient price discovery system.
We exposed, in this short text, a resumed definition of the Futures market and how it works. We also replied to Bitcoin market as an increasing market which deserves more attention. This topic is, however, to be continued; in the net topics, we will discuss the pricing and trading of Bitcoin and the specifications and the advantages of this market.