Bitcoin has become a popular investment, we have seen institutions increasingly incorporate Bitcoin into their investment portfolio over the recent years. Bitcoin’s volatility has long been considered to offer strong profit potential by investors.
As more people are recognizing the intrinsic worth of Bitcoin, investors are becoming more confident than ever about the future value of Bitcoin. This is where futures kick in for those that have their faith fixed in Bitcoin.
Bitcoin derivative trading has surpassed spot trading recently in terms of daily trading volume. According to data tracker Skew and BitcoinTradeVolume.com, the daily trade volume of derivative trading exceeded that of spot trading by 10 to 18 times, with around $5 billion to $10 billion a day. There are several factors contributing to the shift, such as reduced volatility of Bitcoin itself, which help to fulfill Bitcoin’s promise to be a stable store of value. Another reason people are exiting the spot market is the influence of Bitcoin whales in the spot market, who hold and control a disproportionate amount of digital currency in the market, and have a huge impact on the price movement.
What are Bitcoin Futures?
As the market evolved, Bitcoin Futures were introduced to allow investors to leverage Bitcoin’s volatility for massive gain. Futures, or futures contracts, are agreements to buy or sell a commodity asset at a fixed price at the specified period of time in the future.
The principle of futures is that it enables investors to profit based on their speculation on the future direction of a commodity asset. Investors do not need to own any bitcoin for trading futures.
Futures contract first appeared in 2012. Today, Bitcoin futures has become one of the most popular trading products in the space.
Why Trade Bitcoin Futures?
Futures contracts allow investors to hedge the falling price risk by holding a short futures position simultaneously, allowing investors to mitigate losses without additional funds. Traders also can enter positions with little capital, and aim for bigger gains using leverage.
One of the unique features for futures contracts at BTCC bitcoin futures trading platform is the negative balance protection. Unlike most of other exchanges that often require users to share loss when there is a negative balance. From 2019, BTCC has promised that they will cover the user’s negative balance 100% rather than letting all profiting users share the losses.
BTCC offers perpetual contract, weekly contract and daily contract for bitcoin, with various leverage from 10x to 150x to suit the needs of different traders. For example, a perpetual contract has no expiry date, and it is suitable for traders who would like to hold positions for a long period of time. While the daily contract at BTCC supports up to 150x, it is designed for traders who are looking for big gains in a short period of time.
How Futures Contract Work?
Each contract at BTCC represents 1 unit of the cryptocurrency, which means 1 BTC equal to one BTC/USDT contract. Trader can go long if he believes that the price will be higher than its current trading price in the future, and open a short position if he thinks that the price will be reduced at some point in the future.
For example, when the current market price of BTC is trading at $12,000. John speculated that the price of BTC will break $12,000 next week, he decided to long a position with 100x using 1,200 USDT as margin, which equal to the price of Bitcoin at $12,000. On the other hand, Bobby thinks that Bitcoin’s price will dip below $12,000 by next week, he shorts the position with 100x using 1,200 USDT as margin, which equals the price of BTC at $12,000.
Both John and Bobby will be matched by an exchange to form a futures contract. After one week, if the price of BTC is trading at $12,100, it means John has profit from his long position. John earned $100 (from the price gain) x 10 = $1000 as a result. Whereas Bobby loses $100 (from the price dip) x 10 = $1000.
Following both John and Bobby’s futures contract expired, BTCC will settle the contracts in Tether (USDT). However, if they traded a physical delivery perpetual contract, they can choose to have their asset to be physically delivered. In this case, John invested $12,000 using 1200 USDT of margin to open a long position worth of 10 BTC with 100x leverage.
Following Bitcoin’s price rose to $12,100, John can choose to have his realized profit to be physically delivered. However, John would need to fulfil the total value of the original futures contract, which is 10*12,000 = $120,000 to buy 10 BTC.
Physical Delivery Perpetual Contract at BTCC
Most of the exchanges support cash settlement once the contract expires, which means holders of futures contracts do not receive the underlying asset (bitcoin). However, there is a growing trend that more and more people are choosing to have their contract to be physically delivered. BTCC is among the earliest exchanges that launch physical delivery perpetual contracts.
One of the advantages of trading physical delivery perpetual contracts is that there is no chance of price manipulation, because every trader who is holding the contract will receive the underlying asset which is bitcoin at the end, and there is no formula involved in calculating the price of bitcoin.
Perpetual contracts at BTCC support both physical delivery and cash settlement. Traders can have their assets such as BTC and ETH to be physically delivered, and have those assets stored in their own wallet. You can trade Bitcoin perpetual contracts at BTCC from 10x, 20x, 50x to 100x leverage.
Given the increasing recognition of the value of Bitcoin, and the potential benefit of futures contracts. It is no surprise Bitcoin futures contract is a massive hit. It is very important to choose an exchange that not only has a history of stability and security, but also offers flexible and user’s friendly trading products.
As a nine years old exchange, BTCC has never experienced any security incident, which is rare in the cryptocurrency industry. With the growing popularity as well as 6 million users worldwide are continuing trading at BTCC platform. The one of the oldest exchanges in the world has proved itself well throughout its 9 years of operating history in space. In addition to the English market, BTCC is now available in Korean (비트코인 선물), Japanese (ビットコイン先物取引), and Vietnamese (Hợp đồng tương lai Bitcoin).
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