Bitcoin Futures

Page Summary

What are Bitcoin Futures?

Bitcoin futures are contracts that allow investors to speculate on Bitcoin’s future price. Bitcoin futures are traded on the basis of price agreements. A Bitcoin future is an agreement to trade Bitcoin at a set time in the future at a price that’s been agreed upon in advance. Two parties discuss this agreement and then record it. People can trade Bitcoin futures on Bitcoin exchanges.

Bitcoin Futures

Spot Trading 

The regular way of trading is called spot trading. The stock market fluctuates, causing the value of shares to increase or decrease. This stems from the interplay between supply and demand. If the supply is high but the demand is less, this means a lower value of a share. If a stock is very popular, but there are only a few available on the market, then the price that people are willing to pay for these stocks will increase. 

Companies are divided into pieces through shares, in which each piece of the company is represented by a share. If a company isn’t performing well, people will sell their shares. Is the company outperforming its peers? Then people will buy more shares.

This normal way of trading is very common and the rise and fall rates are generally small. Price changes are greater in times of general stock market crises or a merger of influential companies. 

Futures Trading

The biggest difference between spot trading and futures trading is the timing. When you trade futures, you focus much more on predicting prices and how they will behave in the future. You don’t enter when the price of an asset is lower and then hope that it will rise, but rather step in and indicate what your expectation is with regard to the price. 

Futures trading is betting on the development of the price. Traders can either bet on prices to rise or to fall in the future. With Bitcoin futures trading, you conclude a contract in which it is determined at what time and for what amount you buy or sell a Bitcoin. 

The benefits of Futures Trading

A major advantage of futures trading is that there are no large investments required to achieve a high return. This is due to leverage. Another big advantage, and also a big difference from spot trading, is the possibility to make money when the asset falls. You do not buy the crypto but a derivative. The last advantage is that it is not necessary to have coins to trade. Trading in futures also offers the opportunity to reduce the risks of your portfolio.

The disadvantages of Futures Trading

The biggest disadvantage of trading futures is leverage. This leverage causes traders to be able to win big, but also lose big. This can go fast and traders can lose a lot of money quickly. It is not the case that traders can sit back and relax when trading futures. It is important to follow the market carefully and to estimate the impact that the prices have on futures.

What is leverage?

Leverage means amplifying the effect of your trading position. If you trade with x5 leverage, it means all your profits and losses will be multiplied by 5. You can achieve a high return with a small investment by using leverage, but the flip side is just as powerful. 

We recommend beginners to use Bitcoin exchanges that have a margin built-in to protect them against big losses.

Trading Bitcoin Futures

Now that you know how futures work, you may be wondering how to trade Bitcoin futures. If you expect the price of Bitcoin to rise, you open a long position. Is Bitcoin’s price indeed rising? Then you make a profit. 

If you expect the price of Bitcoin to fall, you open a short position. You take profit when the price of Bitcoin indeed falls. You also choose whether you want to add leverage to your position.

It is possible to lose money trading futures. This can happen when the stop-loss limit is reached. The stop-loss limit is a limit that you set yourself to make sure your loss won’t go below this limit. If it does, you have to deal with a liquidation price. If the price exceeds the liquidation price, you will lose your entire investment. 

Bitcoin Futures Trading Strategies 

Bitcoin futures trading strategies are subject to various factors, including vision, purpose, and time.

Goal: Start by defining a clear goal, why do you want to start trading Bitcoin futures? We recommend trading futures to spread your risk. Because the value of your portfolio depends on the developments on the market, you can choose to open a short position. If the price of Bitcoin falls and your portfolio value declines, the Bitcoin futures ensure that this effect is softened. 

By opening a short position, you make a profit when the Bitcoin price drops so that the total loss will be lower. There are even those who take short positions for just minutes or even seconds. However, it is more common for people to hold short positions for longer periods of time. So choose your goal carefully and determine a good vision based on this.

Vision: Determine your own vision of price developments. If you expect a price increase you open a long position and set yourself a price target. Do you expect the price to drop? Then you open a short position and do the same.  

Time: Decide how long you want to hold your positions. Is it going to be minutes or days? Take into account how much time you have to trade futures. With short positions, it is important that you can follow price movements all the time.

Why do people invest in Bitcoin Futures?

People are trading Bitcoin futures because they provide a guaranteed return on the mining efforts and investments for Bitcoin miners. For traders and investors, Bitcoin Futures hedge their spot trading positions. Bitcoin futures are traded on regulated Bitcoin exchanges. This gives institutional investors more confidence to trade Bitcoin. Bitcoin Futures are settled in cash. There is no need for a Bitcoin Wallet.

Where can you trade Bitcoin Futures?

You can trade Bitcoin Futures on Bitcoin exchanges like Binance, Coinbase, and Kraken. Other options are Bakkt and EriX. If you don’t want to trade Bitcoin futures yourself, you can buy the ProShares’ Bitcoin Strategy Fund ETF. 


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