Ever since its popularity, cryptocurrency has become the talk of the town in the world of business, economics, and finance. Everyone has their own opinion or reservation regarding cryptocurrency. But, here’s another evolution in crypto trading. It is called cryptocurrency futures.
What is a Futures Contract?
A futures contract is a contract entered into by two parties, the seller of foreign currency and the buyer of foreign currency.
A futures contract is a derivative instrument used to hedge the exposure to the volatility of foreign exchange rates. In simple words, “hedge” means “to protect” someone from the risk of incurring losses due to changes in spot rates.
In this contract, a forward rate (or agreed rate) is used. This is where the fun begins. Since the price is set, future changes in rates won’t affect the payable or receivable of either party.
To sum it all up, entities enter into futures to reduce their exposure to foreign currency exchange rate risk, and this technique is called hedging.
How Futures Work in Cryptocurrency?
Cryptocurrencies are volatile investments. Prices are changing, and when they change, they vary in large deviations. Do you remember how a futures contract works? Well, that’s the same reason why investors are eyeing on cryptocurrency futures.
The first Bitcoin futures occurred on December 10, 2017. It is a giant leap for cryptocurrency trading since some people have been praying for its failure.
This is how things work. The standard price of a futures contract to hedge Bitcoin is $10. A futures contract for Bitcoin would be “BTC/USD-4.19,” which reads as “Bitcoin per US dollar in March 2019.”
In trading, the symbol for this contract would be “BUH9.” which came from “B” of BTC, “U” of USD, “H” as the symbol for March, and “9” as for the year 2019.
How Will Futures Affect Cryptocurrency?
Cryptocurrency Futures opened a lot of possibilities for a favorable future for cryptocurrency trading. With the futures contract in action, it could decrease volatility and increase liquidity for investors.
More and more people will invest in cryptocurrency and see its potential. Overall, the introduction of futures in crypto trading gained investor confidence in trading and cryptocurrency itself.
The emergence of cryptocurrency and the recent introduction of crypto futures opened a lot of possibilities for crypto trading. It could help cryptocurrency get out of the tunnel of uncertainty and doubt.
This milestone in cryptocurrency history can pave the way to cryptocurrency as being well-recognized security in the future.