Bitcoin Futures Trading: How to Make Money With Bitcoin Without Buying It

Bitcoin Futures Trading: How to Make Money With Bitcoin Without Buying It

Futures trading is a way for people to ensure a specific price of an asset at a specified point in time. For traders, it is an opportunity to gain additional profit without purchasing an asset.

It would be good to start with a simple example before moving to Bitcoin futures trading. What about something more common?

Say, a farmer knows that he needs to buy 6 tons of corn in, say, 6 months. Buying the corn now isn’t an option, for one or another reason. But in 6 months, the price of corn might grow which is also not profitable.

So, the farmer can buy a futures contract for corn, where it is specified that in 6 months, the farmer has to buy 6 tons of corn at the agreed price. Even if the price for corn grows, the farmer buys the corn at the price indicated in the futures contract, so the purchase will also bring significant profit. If the corn price drops, the farmer will lose money because he will have to buy corn for the price specified in the futures contract which will be higher than the market price.

Now, it looks pretty simple. However, how can traders benefit from futures trading? We haven’t seen a trader that would buy tons of corn, barrels of crude oil, etc. The thing is that traders don’t trade goods or assets, they trade futures contracts.

Let’s return to the story with the farmer. When the futures contract time expires, and the price of corn has grown, the farmer might buy the corn or he might sell the contract to another farmer. So, he will not have to make a purchase but still will win. How much can he gain? Well, for whatever he agrees with another farmer, but if the corn price has grown significantly, the gain might be high.

Now, you understand what futures trading is, and we can move to Bitcoin futures trading.

Bitcoin Futures Trading — Another Way to Earn on Bitcoin

Bitcoin futures trading allows traders to gain profit from Bitcoin without owning underlying cryptocurrency. The principle is the same: you make a futures contract with somebody that you will buy a specific number of Bitcoins at the price agreed in the contract. The time when the purchase shall be made is also specified.

Basically, traders place a bet on whether the price of Bitcoin is going to grow or drop. The contract participants can go long by betting on the price increase, or they can go short if they are anticipating a price drop. When the contract date arrives, the parties settle, and the contract closes.

If you use leverage, you don’t need to match the entire contract value. You can secure the contract with a smaller stake. It is called an initial margin. If the price is moving against the trader`s expectations, the trader shall adhere to a specific maintenance margin level. If it is not done, the position is closed, and all the privileges are lost.

Then, you can either wait until the time comes, and buy coins, or you can sell the futures contract to somebody else. The more Bitcoin is expected to grow, the higher is the price of your futures contract.

Where You Can Trade Bitcoin Futures

While cryptocurrency is being increasingly accepted, more places appear that offer Bitcoin futures trading. Some of the most popular options are the following:

  • The Chicago Mercantile Exchange (CME): the exchange offers monthly contracts with a cash settlement. Instead of the physical delivery of a coin, the contracts are settled in fiat money.
  • Bakkt offers daily and monthly Bitcoin futures contracts for physical delivery.
  • The Intercontinental Exchange offers daily and monthly Bitcoin futures contracts for physical delivery.
  • Bitfinex offers pretty straightforward Bitcoin futures trading.

Are Bitcoin Futures Trading Better Than Trading Bitcoin?

Bitcoin futures trading has several benefits compared to traditional Bitcoin trading. The main benefit is the fact that, by trading futures, you are dealing with exchanges regulated by the Commodity Futures Trading Commission.

Thus, the contract will be completed in any case, and even if one or another cryptocurrency exchange (do you remember Mt.Gox when millions of dollars were lost in a hack?) is hacked and a significant number of coins is stolen, the only influence on you will be in the price change of Bitcoin and the profitability of your futures contract. Even if the losses are high, they cannot be compared to those losses that a person might suffer when losing some Bitcoins.

Such centralized and regulated marketplaces have facilitated trading based on the traders` outlook for Bitcoin prices. It has given another push to Bitcoin as an accepted cryptocurrency.

Another benefit is a relatively low entry-level. You don’t need to invest in buying Bitcoin which is not cheap at all, neither you have to invest in a wallet to keep your coins safe. Instead, you buy a futures contract.

Bitcoin futures trading is risky, like any venture connected with cryptocurrency. So, ensure you follow the basic rules to avoid financial troubles or a complete failure.

Invest in trading, even if it is futures trading, those funds only that you can afford to lose. A loss shall not have a negative impact on your life or the life of your family.

Never trade with last money and never borrow money to invest them in cryptocurrency. Cryptocurrency is a highly volatile asset thus, its price can boost or drop at any moment. When investing in crypto futures trading, ensure you understand the underlying risk.

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Bitcoin Futures Trading: How to Make Money With Bitcoin Without Buying It

Posted by staff on June 21, 2021

Blockchain


Bitcoin Futures Trading: How to Make Money With Bitcoin Without Buying It

Bitcoin Futures Trading: How to Make Money With Bitcoin Without Buying It

Futures trading is a way for people to ensure a specific price of an asset at a specified point in time. For traders, it is an opportunity to gain additional profit without purchasing an asset.

It would be good to start with a simple example before moving to Bitcoin futures trading. What about something more common?

Say, a farmer knows that he needs to buy 6 tons of corn in, say, 6 months. Buying the corn now isn’t an option, for one or another reason. But in 6 months, the price of corn might grow which is also not profitable.

So, the farmer can buy a futures contract for corn, where it is specified that in 6 months, the farmer has to buy 6 tons of corn at the agreed price. Even if the price for corn grows, the farmer buys the corn at the price indicated in the futures contract, so the purchase will also bring significant profit. If the corn price drops, the farmer will lose money because he will have to buy corn for the price specified in the futures contract which will be higher than the market price.

Now, it looks pretty simple. However, how can traders benefit from futures trading? We haven’t seen a trader that would buy tons of corn, barrels of crude oil, etc. The thing is that traders don’t trade goods or assets, they trade futures contracts.

Let’s return to the story with the farmer. When the futures contract time expires, and the price of corn has grown, the farmer might buy the corn or he might sell the contract to another farmer. So, he will not have to make a purchase but still will win. How much can he gain? Well, for whatever he agrees with another farmer, but if the corn price has grown significantly, the gain might be high.

Now, you understand what futures trading is, and we can move to Bitcoin futures trading.

Bitcoin Futures Trading — Another Way to Earn on Bitcoin

Bitcoin futures trading allows traders to gain profit from Bitcoin without owning underlying cryptocurrency. The principle is the same: you make a futures contract with somebody that you will buy a specific number of Bitcoins at the price agreed in the contract. The time when the purchase shall be made is also specified.

Basically, traders place a bet on whether the price of Bitcoin is going to grow or drop. The contract participants can go long by betting on the price increase, or they can go short if they are anticipating a price drop. When the contract date arrives, the parties settle, and the contract closes.

If you use leverage, you don’t need to match the entire contract value. You can secure the contract with a smaller stake. It is called an initial margin. If the price is moving against the trader`s expectations, the trader shall adhere to a specific maintenance margin level. If it is not done, the position is closed, and all the privileges are lost.

Then, you can either wait until the time comes, and buy coins, or you can sell the futures contract to somebody else. The more Bitcoin is expected to grow, the higher is the price of your futures contract.

Where You Can Trade Bitcoin Futures

While cryptocurrency is being increasingly accepted, more places appear that offer Bitcoin futures trading. Some of the most popular options are the following:

  • The Chicago Mercantile Exchange (CME): the exchange offers monthly contracts with a cash settlement. Instead of the physical delivery of a coin, the contracts are settled in fiat money.
  • Bakkt offers daily and monthly Bitcoin futures contracts for physical delivery.
  • The Intercontinental Exchange offers daily and monthly Bitcoin futures contracts for physical delivery.
  • Bitfinex offers pretty straightforward Bitcoin futures trading.

Are Bitcoin Futures Trading Better Than Trading Bitcoin?

Bitcoin futures trading has several benefits compared to traditional Bitcoin trading. The main benefit is the fact that, by trading futures, you are dealing with exchanges regulated by the Commodity Futures Trading Commission.

Thus, the contract will be completed in any case, and even if one or another cryptocurrency exchange (do you remember Mt.Gox when millions of dollars were lost in a hack?) is hacked and a significant number of coins is stolen, the only influence on you will be in the price change of Bitcoin and the profitability of your futures contract. Even if the losses are high, they cannot be compared to those losses that a person might suffer when losing some Bitcoins.

Such centralized and regulated marketplaces have facilitated trading based on the traders` outlook for Bitcoin prices. It has given another push to Bitcoin as an accepted cryptocurrency.

Another benefit is a relatively low entry-level. You don’t need to invest in buying Bitcoin which is not cheap at all, neither you have to invest in a wallet to keep your coins safe. Instead, you buy a futures contract.

Bitcoin futures trading is risky, like any venture connected with cryptocurrency. So, ensure you follow the basic rules to avoid financial troubles or a complete failure.

Invest in trading, even if it is futures trading, those funds only that you can afford to lose. A loss shall not have a negative impact on your life or the life of your family.

Never trade with last money and never borrow money to invest them in cryptocurrency. Cryptocurrency is a highly volatile asset thus, its price can boost or drop at any moment. When investing in crypto futures trading, ensure you understand the underlying risk.

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