One of the most anticipated events of the year in the bitcoin market finally happened and on Sunday night (10) the crypto-currency futures contracts were traded on the CBOE Chicago Derivatives Exchange. Although it makes the money to fire in the last hours, the debate on the subject follows quite intense.
Some experts believe that the emergence of this traded product will change bitcoin, helping to increase its popularity and bring investors into the market. Critics, including people within the futures industry, argue that the contracts are premature and, in the worst case, present a systemic risk given the volatility of the digital currency market.
But for many investors, it is still unclear what these futures contracts are, something already well known in the stock market.
Bitcoin futures contracts were traded on the CBOE Global Markets under the symbol XBT on Sunday. With the beginning of the business, the price of the criptomoeda had a strong jump, reaching the $ 18 thousand. It is worth remembering that the "rival" exchange CME Group plans to launch its future contract on December 18th.
Basically, a futures contract allows an operator to place a leveraged bet saying whether the price of the asset (in this case the bitcoin) will rise or fall until the contract expires. In the market language, those who believe that it will increase will stay "long" in that asset, while the investor who thinks the price will fall is short.
Bitcoin futures will be settled in cash, which means that no bitcoins will actually be transacted when a contract expires. "Winning" investors take their "losers" winnings. In addition, investors do not have to wait for the maturity, usually they exercise the options (zeroing their position) before this deadline
Getting short Among the great advantages of the futures market is the possibility of being "sold" in a particular asset. According to analysts, this mechanism means that hedge funds can take bitcoin more seriously, helping to improve the market outlook for crypto-currency.
In the market, for each person who gets "short" another is getting "long". With this, there will always be a winner and a loser in this market, depending on the movement that the asset has.
An example: a US $ 20,000 bitcoin contract maturing in June 2018. This means that on this date whoever is bought will pay $ 20,000, while those who are sold will have to "deliver" the asset through this one price. Imagine that by the due date, bitcoin is worth $ 25,000. The investor bought, in this case, has a profit of $ 5,000, while the sold has a loss of $ 5,000.
Hedging Another great advantage of creating this product is the opportunity for the investor to make the so-called "hedge", that is, to have a protection in the market. In the case of bitcoin, investors called "whales" (big players) can take advantage of futures to protect themselves from a sharp and sudden drop in prices.
This is because even people who have large amounts of bitcoin can enter the options market to seek a short position in the cryptomoeda, thereby reducing their losses in the event of a sharp fall in prices. Movement with purchase options is also possible.
Once again, this broadens the "range" of investment options, bringing to the bitcoin market mainly large institutional investors and hedge funds, which may have more security to invest in bitcoin.
Criticism and Risk Control Despite the many advantages, one of the great risks of the bitcoin market is still its volatility, and in the options this is even more dangerous. Big banks and brokerages have criticized the launch of futures contracts, saying it's a premature idea. In an open letter to the Commodity Futures Trading Commission, the Futures Industry Association said the product did not receive sufficient feedback on margin levels and other important points.
Some experts believe that the emergence of this traded product will change bitcoin, helping to increase its popularity and bring investors into the market. Critics, including people within the futures industry, argue that the contracts are premature and, in the worst case, present a systemic risk given the volatility of the digital currency market.
But for many investors, it is still unclear what these futures contracts are, something already well known in the stock market.
Bitcoin futures contracts were traded on the CBOE Global Markets under the symbol XBT on Sunday. With the beginning of the business, the price of the criptomoeda had a strong jump, reaching the $ 18 thousand. It is worth remembering that the "rival" exchange CME Group plans to launch its future contract on December 18th.
Basically, a futures contract allows an operator to place a leveraged bet saying whether the price of the asset (in this case the bitcoin) will rise or fall until the contract expires. In the market language, those who believe that it will increase will stay "long" in that asset, while the investor who thinks the price will fall is short.
Bitcoin futures will be settled in cash, which means that no bitcoins will actually be transacted when a contract expires. "Winning" investors take their "losers" winnings. In addition, investors do not have to wait for the maturity, usually they exercise the options (zeroing their position) before this deadline
Getting short Among the great advantages of the futures market is the possibility of being "sold" in a particular asset. According to analysts, this mechanism means that hedge funds can take bitcoin more seriously, helping to improve the market outlook for crypto-currency.
In the market, for each person who gets "short" another is getting "long". With this, there will always be a winner and a loser in this market, depending on the movement that the asset has.
An example: a US $ 20,000 bitcoin contract maturing in June 2018. This means that on this date whoever is bought will pay $ 20,000, while those who are sold will have to "deliver" the asset through this one price. Imagine that by the due date, bitcoin is worth $ 25,000. The investor bought, in this case, has a profit of $ 5,000, while the sold has a loss of $ 5,000.
Hedging Another great advantage of creating this product is the opportunity for the investor to make the so-called "hedge", that is, to have a protection in the market. In the case of bitcoin, investors called "whales" (big players) can take advantage of futures to protect themselves from a sharp and sudden drop in prices.
This is because even people who have large amounts of bitcoin can enter the options market to seek a short position in the cryptomoeda, thereby reducing their losses in the event of a sharp fall in prices. Movement with purchase options is also possible.
Once again, this broadens the "range" of investment options, bringing to the bitcoin market mainly large institutional investors and hedge funds, which may have more security to invest in bitcoin.
Criticism and Risk Control Despite the many advantages, one of the great risks of the bitcoin market is still its volatility, and in the options this is even more dangerous. Big banks and brokerages have criticized the launch of futures contracts, saying it's a premature idea. In an open letter to the Commodity Futures Trading Commission, the Futures Industry Association said the product did not receive sufficient feedback on margin levels and other important points.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.