Cryptocurrencies are a popular choice for investors, both old and new…
And digital assets are relatively unpredictable in their current state, but it would be unwise to ignore the potential of Bitcoin and similar projects.
Bitcoin futures are becoming a viable option for traders and investors. Similar to futures in traditional investing, Bitcoin futures allow the investor to set a price and time in which they would like to buy or sell a specified number of cryptocurrency.
This type of trading allows investors to get in on the market while taking advantage of leverage.
Futures trading doesn’t eliminate risk, however. Slight changes in value can ruin your investment, and there is a higher chance overall of losing money. That said, you have that same chance of gaining money if the market turns out in your favor.
Bitcoin futures have only recently been offered. There are a few different exchanges that provide the opportunity, and we’re going to show you how to sign up for a Bitcoin futures account with them.
Bitcoin Futures
Sign Up For An Exchange
Out of all the cryptocurrency exchanges on the market, only a few allow for futures trading. Currently, the ones you can check out are BitMEX, CME, and Deribit, among a few others.
It’s essential to decide on an exchange that is resistant to hacking attempts and won’t try and scam you out of your money. Do your research, and choose one that represents your specific needs well.
Here, we are going to list the specifications of the three aforementioned exchanges:
BitMEX
- Can use high leverage
- Easy-to-use interface
- Can trade anonymously – verification only takes an e-mail address
- Withdrawals can be made twice a day
- Can only deposit and withdraw in Bitcoin
- Quality customer service
- Non-U.S. customers only
CME
- Contracts consist of 5 Bitcoins
- Consolidates data between popular exchanges: Kraken, itBit, Bitstamp, and GDAX
- Implements an approximate 35% margin rate (depending on the broker)
- Price limit of 20% – can be an issue for big-time traders
Deribit
- Trade at up to 20x leverage
- Contracts are each worth $10
- Uses the average Bitcoin price of exchanges, removes the high and low outliers
- Leverage is set to 10:1 for a buyer
- Limits some options – no trailing stops for example
CBOE
- Requires a single Bitcoin per contract
- Cash-settled transactions
- Equal to the value of BTC shown by the Gemini exchange
- Requires an initial margin of 30%, but can change based on volatility
- Trading hours from 8:30 AM to 3:15 PM CST Monday to Friday
Once picking an exchange, you must simply sign up to one of them and follow their levels of verification to allow for futures trading. Most of the time, you’ll have to send in an ID, verify an address and e-mail, and possibly a place of residence as well. There are a few exchanges that require minimum levels of verification, though those are few and far between.
What To Watch For In Futures Trading
Futures trading is an exciting way to get into Bitcoin and can be a great way to turn a profit. That said, there are some things to consider while getting into this form of investing:
Value
Checking the value of each contract is essential. See what each one is worth and ensure that it is worth your time and money.
Margins
Multiple levels tell how much one can leverage a trade. At a certain point, liquidation occurs. These are called margin levels, and knowing them beforehand can turn the tides in your favor.
Settlements
Take note of when a contract is set to expire. Each exchange has policies in place to prevent price manipulations, but contracts have their specifications.
Account Funding
Now that you’ve chosen and signed-up for an exchange that meets your needs, you must fund your account.
Some platforms allow you to wire transfer, while others require you to use cryptocurrencies alone. However, once that’s done, you can start trading futures.
Why Should I Trade Bitcoin Futures?
Unlike the traditional stock market, Bitcoin and cryptocurrencies, in general, are always going worldwide. There is no shutdown, and there is no downtime.
Bitcoin futures allow you to speculate on the price of Bitcoin, while also providing you with a way to hedge your position without actually losing any BTC. It increases exposure to traded Bitcoin prices, and it doesn’t even require you to hold the asset.
Futures have the potential to innovate on the cryptocurrency industry as a whole. They change the way investors view Bitcoin and will affect trading in general.
Of course, it’s important to know that futures are not a catch-all. Bitcoin is ridiculously volatile. There are times when it raises or drops 20% in just a day. That doesn’t happen in the traditional stock market every day.
Be careful not to make a huge position, as you may see yourself losing your entire investment. However, if you’ve made a correct prediction, you’re set to make a significant profit.
Plus, as regulation begins to increase, we may see banks and other financial firms start to invest in Bitcoin futures and cryptocurrencies in general. Goldman Sachs is attempting to get in on digital assets, and the rise of futures could help bring more positivity towards cryptocurrencies in the United States.
Before trading futures, talk to your licensed financial planner to see if they’re right for your personal financial situation. There are risks in futures markets that aren’t present in spot markets. It’s best to develop your trading skills before participating in any financial markets.