Sun. Jan 24th, 2021


Real Simple

BTC Futures. What is it and what benefits can they bring?


Before you go directly to the features and specifications of futures, the first thing to do is to understand what this contract is and how to use it in order to make a profit or minimize risks. In fact, futures are an agreement between the two parties on the sale of a certain asset at a fixed cost. At the same time, the market price does not play any role – there is a futures contract, which means that the transaction must be completed in accordance with the prescribed conditions. It is customary to distinguish two types of positions:

  • Long
  • Short Ones.

The former means the consent of the trader in the future to acquire a certain asset at a specific cost, the latter means the same thing, but with the sale of a trading instrument.

Why do we need futures?

To make money on them. Of course, with their help they also take care of preserving capital by reducing risks, this feature of financial instruments cannot be ignored, but basically the settlement futures market is still speculative. Especially if you recall that often trade is carried out using leverage. Yes, this behavior in the market can result in significant losses, but the profit is many times higher.

As for minimizing damage due to a fall in the value of an asset, here we can give an example with BTC miners. It is likely that at some point the crypto currency will depreciate so much that the income from its sale will not cover the costs of mining. How to avoid this? Start selling futures on the amount of BTC that the miner already has. Ultimately, this will allow us to neutralize the “harm” from the negative dynamics of the exchange rate value of the underlying asset.

Types of futures and their specifications

Before considering what kind of futures are, simultaneously answering a common question in the spirit: “Describe the main types of futures,” it is worth mentioning that they have successfully integrated into the crypto industry, although they were initially used in the traditional market. Therefore, all the information is also true for financial instruments that use bitcoin or other tokens as their underlying asset.

Futures are usually divided into two types:

  • Delivery
  • Settlement

The name of the first one says that the expiration date of the contract implies the mandatory fulfillment of the terms of the transaction: one side sells the asset, the other buys. You can demonstrate an example in simple words on an oil purchase agreement, when in the end the buyer physically receives his goods. Does this mean that all transactions for raw materials are a priori supply? No. Most of them are speculative and hedging, so they close before the deadline.

As for settlement futures, no supply of goods is supposed in principle. The “losing” party simply pays the difference between the actual value of the underlying asset and the price that appears in the contract. A settlement future is a sought-after financial instrument used to hedge risks and speculative earnings.

By specifications, it is customary to understand an official document containing the terms of a contract. In particular, it indicates:

  • Name of the contract
  • Ticker
  • The size
  • Minimum allowable step of the asset value
  • Type of futures
  • Term of the contract
  • Delivery date etc

Bitcoin Futures

As mentioned earlier, almost any liquid assets, from stocks to stock indices or even cryptocurrencies, can serve as the underlying asset for futures. Does a conditional future on BTC differ from a similar contract on, say, some kind of exchange commodity? No. There are no significant differences, the tools are virtually identical.

One important feature worth mentioning here is that you can trade BTC futures without the seller having them. Both parties understand that transactions are initially purely speculative, and no deliveries of coins will be made to the buyer. For example, in a similar way, we established work with futures on the CBOE and CME exchanges. Perhaps the situation will fundamentally change with the advent of the Bakkt trading platform, whose representatives promise that the expiration of the contracts involves the delivery of physical BTC to the purchasing side.


Behind a seemingly complicated term that “scares” worse than options, which in fact also seems too abstruse, although this is not so, there is a very simple point – expiration implies that the contract has reached its end of life. On this day, settlement of the parties to the transaction. The expiration date is indicated in the specifications of the contract.

Types of Margin

There are three types of margin:

  • Deposit
  • Supporting
  • Variational

The first type of margin is also called initial. It is charged by the exchange at the time of opening the position, in fact, a certain guarantee fee to protect the broker, which is then returned to the parties to the transaction. In the case of traditional underlying assets, the deposit margin rarely exceeds 10% of the current price. The situation with Bitcoin price futures is different – due to the high volatility of a trading instrument, exchanges prefer to set the initial margin an order of magnitude higher. Often it is at least 40%.

The second type of margin – supporting – represents the amount of funds on deposit so that the position does not close due to the so-called margin call, when the transaction is forcibly closed by the broker, which leads to significant financial losses to the trader. The size of the maintenance margin varies depending on the trading platform and can reach up to 80%.

The third type – variational – comes down to the amount of funds that are loss / profit from closed / open futures.

Contango and Backwardation

These concepts reflect the mood of the market at a certain point in relation to the underlying assets. If before the expiration of the futures its value is higher than the underlying asset, then traders believe that in the future this trading instrument will grow in value. It was called contango. In the case when the futures price falls below the market price, then the dominance of the “bears” is observed, and the phenomenon itself is called backwardation.

Where to trade besides large exchanges?

Of course, hypothetically, the most attractive for trading bitcoin futures look like CBOE or CME platforms, but they are mainly focused on large market players and it just won’t get through there. Alternatively, you can use various cryptocurrency exchanges, such as OKEx, BitMEX and others. They are not so tightly controlled by regulators, and also have a number of other interesting features, for example, increased leverage, low entry threshold, etc., which opens up access to sites for a wide range of users.

Bitcoin Futures and Crypto Industry

Will bitcoin futures affect the crypto industry as a whole? Most experts agree that this question should be answered in the affirmative. Moreover, the emergence of such financial instruments will contribute to the massive adoption of cryptocurrencies, which ultimately will qualitatively affect their capitalization and integration into the everyday life of ordinary citizens.

Another positive factor is the decrease in BTC volatility. So far, it has not been possible to confirm it, but there is an opinion that bitcoin futures will significantly contribute to this process.

Do futures themselves affect the market value of BTC? Here the situation is not so clear. On the one hand, yes, as traders can open a large number of short positions. On the other hand, no, because on the market scale as a whole, the share of futures contracts is insignificant. However, this cannot be discounted.

Considering bitcoin in the context of its use as a basic asset for such trading instruments as futures, one cannot but note the emerging integration of the cryptocurrency and traditional markets. Ultimately, this can lead to the confident development of the crypto industry as a whole.