Saturday, November 26, 2022

An overview of cryptocurrency futures contracts

It is important to note that the majority of platforms do not offer all of the listed types of futures contracts. Therefore, investors should choose a futures exchange that offers all of the listed types of futures contracts.

Futures with Physical Delivery 

Another type of Cryptocurrency Futures Trading with expiration dates is physical delivery futures, which were introduced by Bakkt, an entity backed by ICE, the parent company of the New York Stock Exchange (NYSE). It is only during settlement that cryptocurrencies are delivered, which is the only difference from regular futures.

In the current market, Bakkt offers only Bitcoin futures with physical delivery, which means that Bitcoin will be transferred to the buyers of the futures contracts at the end of the contract, which contributes to circulating Bitcoin as a cash-settled futures contract.

Standard Futures Contracts

The standard cryptocurrency futures, in addition to expiration and settlement, also have all of the characteristics that a standard future from a traditional market has. In December 2017, Chicago-based CME Group and CBOE launched Bitcoin futures contracts. This was one of many reasons for the price of Bitcoin to reach a record high at the time, until the price of Bitcoin reached $20,000 in 2020.

In today’s market, CME offers a variety of Bitcoin future contracts with varying expiration dates, as you can see from its Bitcoin Futures Calendar. In recent years, the CBOE has discontinued its Bitcoin futures contracts, but they have decided to bring them back in the near future since the popularity of cryptocurrencies has increased significantly. The expiration date of each contract is determined in U.S. dollars.

A number of BTC Exchanges, however, offer standard futures contracts. These exchanges, including BBTC, Bybit, FTX, Deribit, and FTX, generally offer quarterly Bitcoin futures that are generally negotiated in U.S. dollars. These contracts are typically settled every three months, making them ideal for swing trading. 

Perpetual Contracts 

BitMEX quickly adopted perpetual contracts as they do not have an expiration date, and other major cryptocurrency trading platforms soon followed suit, including BBTC, Bybit, FTX, and ICE.

It is the primary mechanism by which perpetual contracts are kept as close to spot prices as possible by paying traders based on their open positions at certain hours. Funding is the main method by which perpetual contracts are funded. When the funding rate is negative, the trader with a long position pays the trader with a short position, while a trader with a long position pays the trader with a short position when the funding rate is negative. 

With funding payments every eight hours, Bybit trades perpetual contracts in USDT and other stablecoins.

Crypto perpetual futures markets have grown rapidly compared to conventional futures exchanges, but there is still room for improvement.

While crypto prices have dropped significantly in 2022, perpetual futures transactions have not been affected as much. According to coinglass data, average futures volumes still range between $50 billion and $200 billion.

Crypto futures, which have huge potential, will remain a competitive area for top exchanges as well as decentralized exchanges.

Risks of Futures Trading

Several experts believe that the underlying crypto market is not mature enough to support a futures market. It has been argued that Bitcoin’s instability might spread to other parts of the futures market, causing those parts to become unstable as well. Crypto Futures Trading platforms have not been reported to be subject to significant incidents, since most of them are not vulnerable to hacking attacks, unlike regular crypto exchanges that store client holdings. Trading futures on Bybit, for example, is a smooth, convenient, and convenient process.

Despite its appeal for beginners, there are risks associated with market volatility, an open market 24/7, poor trading strategies adopted from traditional markets without any adjustments, and higher-than-recommended leverage.