What are bitcoin textures?

What are bitcoin textures?

Futures are a contract for the purchase or sale of an asset in the future at a certain price. After concluding the contract, the parties must fulfill its conditions, regardless of the market price for the date of the futures.

In transactions with futures, you can open long and short positions. In the first case, the trader agrees to buy an asset at a certain price in the future, in the second – to sell the basic asset on the day of the contract expiration.

What are futures for?

These derivative financial instruments (derivatives) are used mainly to obtain speculative profits. With futures, a trader can open both long and short positions using the effect of a credit shoulder. The latter implies the high profitability of transactions, as well as an increased risk.

However, the futures were originally invented as a hedging tool for price risks. Thus, through futures, it is also possible to reduce the risks of adverse price fluctuations on various assets.

For example, the main risk for bitcoin miners is a drop in cryptocurrency price to a level at which its production becomes unprofitable, that is, the cost of electricity exceeds the income from the mined coins. To protect your business, the miner can sell futures for the number of existing bitcoins. If the cryptocurrency course decreases significantly, then the futures will make it possible to level losses from reducing the price of a profit from a short transaction.

What are the types of futures?

There are futures setting and calculated. The former suggest that on the date of the expiration (expiration) of the contract, the buyer must buy, and the seller shall sell the basic asset in the amount indicated in the specification for him.

As an example of the setting futures, urgent oil or wheat contracts can be given. However, here, in most cases, in most cases, the transactions are carried out without the actual supply of the basic asset, that is, they are purely speculative. Also, operations with setting futures are often hedging, in other words, aimed at minimizing price risks. Thus, most setting futures are closed until the expiration date.

Settlement futures do not initially imply the supply of the basic asset, but only monetary settlement in the amount of the difference between the cost of the contract and the cost of the asset at the date of execution. Such tools are also mainly used for speculative purposes and for hedging price risks.

What is the feature of Bitcoin futures?

Futures contracts can be on a variety of assets – securities, stock indices, exchange products and cryptocurrencies. In general, Bitcoin futures are not much different from other urgent contracts, they also allow you to bet on an increase or reduction in price in the future.

Note that it is possible to trade fixed -term contracts on BTC, not possessing the cryptocurrency itself, but only speculating at its price. That is how, in particular, transactions take place on such famous exchanges as CME and CBOE, oriented mainly on large investors.

However, on the Bakkt trading platform preparing for the launch of the Bakkt trading platform, it will be presented to the supply of physical bitcoin after the contract expiration.

What is a specification of futures?

This is a document approved by the exchange, in which all the conditions of the futures contract are fixed, including:

  • Contract name;
  • its abbreviated name or ticker (for example, XBT on the CBOE or BTC exchange – on CME);
  • the size of the contract (for example, for CBOE it is 1 BTC, for CME – 5 BTC);
  • type (setting or calculated);
  • The minimum price step (for example, on CBOE it is five points, which in a pair of USD/XBT corresponds to $ 5);
  • delivery date and terms of circulation of the contract and t. D.

What is futures expiration?

This is the termination of the contract on the exchange. On the day of expiration, obligations on the futures are fulfilled – mutual calculations are carried out between participants in the transaction by paying the difference in prices (variation margin), or the basic asset is delivered.

The expiration date is prescribed in the specification for the futures.

What is the initial, supporting and variation margin?

Deposit or The initial margin – returned warranty contribution levied by the exchange when opening a position on the futures. In other words, this is the amount necessary to open a position. Usually 2-10 % of the current market value of the basic asset.

However, in the case of Bitcoin futures, due to frequent periods of high volatility, the size of the initial margin is much higher in comparison with traditional financial instruments. So, on CME and CBOE it exceeds 40%.

The initial margin is charged from sellers and buyers and is designed to protect the broker from the risk of failure to fulfill the obligations on the transaction.

Supporting margin -This is the amount necessary on the account so that the position remains open in order to avoid the triggering of Marzhin-Colle (forced closure of the position by a broker, which entails a fixation of the trader loss and a sharp decrease in its balance).

CME and CBOE platforms are accessed by brokers (for example, TD Americans and Interactive Brokers). These companies can set their sizes of marginal requirements, which can be larger than the exchange. For example, the American E-Trade broker has set marginal requirements for bitcoin textures at 80%.

There is also a term Variation margin. This is the amount of money, which is a profit or loss from open or closed contracts. The final value of the variation margin is calculated according to the results of the trading session.

What is a confango and backwaterdation?

Before the date of expiration of the price of the contract and the basic asset, as a rule, differ. As the date of execution of the futures approaches, the price difference is reduced.

Suppose that before execution the price of futures is higher than the cost of the basic asset. This situation is called contango (English. Contango, which literally means “premium to the price”). In this case, market participants are confident in the growth of the price of the asset in the future. Contango may occur, for example, before being full of rewards for the block, on the eve of the possible approval of Bitcoin-ETF or the launch of the Bakkt platform.

If the price of the futures is below the market value of the asset is backwood (from English. BackWardation – “Delay”). This means that bear mood prevails on the market.

Where else can you trade in Bitcoin futures, if there are not so many funds for this?

In addition to the CBOE and CBOE sites rigidly regulated by the American laws, bitcoin textures are also presented on platforms such as Bitmex, OKEX, CRYPTO FACILITES, and T. D.

A feature of such exchanges are much less stringent KYC procedures and AML policy requirements. In addition, such platforms are much lower than the threshold for entering, which means that they are available not only for large investors. Also on these exchanges you can trade with a large credit shoulder (for example, 50-fold leverage is available on Crypto Facilities).

How futures can affect the price of bitcoin and crypto industrial in general?

Many experts are confident that the appearance of bitcoin textures in the traditional market contributes to the mass acceptance and popularization of cryptocurrencies, since the mainstream investors will less skeptically perceive cryptocurrencies. This, in turn, can stimulate demand and positively affect the price and capitalization of the market in the long run.

The emergence of traditional financial instruments based on bitcoin actually means its recognition by regulators as an object of investment. The fact https://gagarin.news/news/trabzonspor-signs-jersey-sponsorship-agreement-with-white-bit/ that bitcoin textures are gaining popularity in the tough-regulated and largest American market in the world, can serve as an example for financial institutions from other countries. Among other things, in jurisdictions where cryptocurrency trade is prohibited, futures allow you to speculate on the price of digital assets underlying them.

On the other hand, large market participants have the opportunity to open short positions, the large volume of which can exert pressure on the price of bitcoin. However, the top manager of the Chicago commodity exchange (CME) Tim McCort believes that futures do not affect the price of bitcoin, since urgent contracts on BTC so far represent only a small part of the market. The famous trader Peter Brandt is in solidarity with him, who is convinced that he should not underestimate the influence on the market from a huge number of small bitcoin investors.

At the same time, the setting futures on Bakkt can serve as an additional factor in demand for bitcoin. In addition, with the development of this market, the likelihood increases that the SEC will finally approve the Birgin Funds attached to bitcoin.

There is also an opinion that Bitcoin futures contribute to a decrease in the volatility of its price.

Be that as it may, the integration of the cryptocurrency market with the traditional can contribute to the mass acceptance of new assets, and therefore their long -term growth.

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