Bitcoin futures are one way to trade cryptocurrency without holding the asset itself. Ideal for some traders, they can be complex for beginners, and there are other methods you can use to invest.
Futures are a contract between two parties to buy an asset at a predetermined price. Bitcoin, as the foremost cryptocurrency by market capitalization, is now being touted as a digital form of gold. The ability to trade futures in cryptocurrency has been around for some time, and is a popular method of investing in Bitcoin without holding the asset itself.
Should I Buy Bitcoin?
The simplest method when starting with cryptocurrency is to hold the asset yourself. Kraken is one trading platform that lets you buy Bitcoin quickly and effortlessly. The method of how to use Kraken to invest in Bitcoin is a simple process that involves an email verification. From this, you can easily add payment methods and buy as much crypto as you like. There are hundreds of coins available, from well-known ones like Bitcoin and Ethereum to upcoming memecoins.
When you own the asset, you can then trade it against traditional fiat currencies. This is possibly a much easier way to trade for beginners, who may struggle with the concept of futures. You can trade against many different global currencies on the major exchanges. For example, you can trade crypto against the euro on Kraken. This just involves buying the cryptocurrency of your choice in the normal manner, then holding it until it rises in value against your preferred fiat currency. With its helpful screens, you can also see popular markets for trading against the EURO. These can involve well-known items like Bitcoin, to popular memecoins like PEPE.
What are Cryptocurrency Futures?
A cryptocurrency futures contract works very much the same way as any futures contract, though it is vastly different from buying the asset outright. This is where an investor buys an asset at a predetermined price on a future date. It is usually done with a commodity or a financial instrument. They are used for hedging price risk and speculative trading.
With cryptocurrency, futures are based on the future price in much the same way. They state that one person must deliver the fiat value of a cryptocurrency to another party, at a specific price by a given date.
The advantages of this are that they can often use leverage. This allows a large position to be opened using borrowed capital. The downside is that this can also lead to large losses, especially in the volatile world of cryptocurrency. There is an argument that futures actually help you hedge against this. By locking in cost or sale prices, they can help stabilize the buying and selling process.
Should losses exceed an account balance, a margin call may be made. This is when more funds need to be deposited to keep accounts open. If not, they may be liquidated for a loss. Margin calls increase the financial demand on an investor.
Futures allow for great asset diversification, and it is no different with cryptocurrency. You can choose from BTC and ETH futures contracts. After this, you can use futures to diversify into other asset classes such as commodities and currencies. Luckily, they are also extremely liquid, with many operating around the clock in contrast to stocks and shares, which rely on exchange opening times.
Spot Bitcoin Exchange Traded Funds
Finally, depending on your location, you may have the chance to use a Spot Exchange-Traded fund. They were introduced in 2024, so are quite a new approval by the Securities and Exchange Commission in the US. They are available to access through many platforms and can even be used in retirement accounts in the US.
Spot Bitcoin ETFs will have high management fees, so keep this in mind. This is not something you pay for when you hold cryptocurrencies yourself. There are currently 11 different Bitcoin ETFs that have been approved by the SEC, along with Ethereum ones. You can purchase them in a similar way you would to buying stocks. It is also worth watching the inflows and outflows on crypto news outlets to see how well they are performing.
Thus, futures are a great way to trade cryptocurrencies, including Bitcoin, though they may not be for everyone. Another way of investing without holding Bitcoin itself is to buy into an exchange-traded fund. However, many people may choose to buy and hold the currency itself in storage for its simplicity until they know the markets and futures trading better.
FAQ
Why Would You Buy a Futures Contract?
Futures contracts allow you to buy and sell a commodity or asset without having to take delivery of it. Futures also allow for high levels of leverage, allowing for big movements from a relatively small capital input.
Are Futures Trades Good for Beginners?
Future trades are good for beginners, as leverage lets them get high returns from a small capital input. It also helps diversify their portfolio. However, they can be extremely volatile and may be more suitable for experienced traders.
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