$BTC futures are financial contracts where two parties agree to exchange Bitcoin at a predetermined price on a specified future date. Instead of buying or selling actual Bitcoin, traders are speculating on its future price movement.
Here's a breakdown:
Speculation: Traders use BTC futures to bet on whether the price of Bitcoin will go up or down without actually owning the Bitcoin itself. If they believe the price will rise, they can buy a "long" futures contract. If they expect it to fall, they can sell a "short" futures contract.
Hedging: For individuals or businesses that hold a significant amount of Bitcoin, futures can be used to "hedge" or protect against potential price drops. For example, a Bitcoin miner could sell futures contracts to lock in a price for their future production, even if the spot market price declines.
Leverage: Futures contracts typically allow for leverage, meaning traders can control a large position with a relatively small amount of capital. While this can amplify profits, it also significantly amplifies potential losses.
Settlement: BTC futures can be settled in two ways:
Cash-settled: At expiration, traders receive or pay the difference in cash (e.g., USD or a stablecoin) based on the price movement, without any actual Bitcoin changing hands. This is common on many regulated exchanges.
Physical-settled: At expiration, the actual Bitcoin is delivered from the seller to the buyer. This is less common for retail traders but exists on some platforms.
Key Exchanges: Major financial institutions and cryptocurrency exchanges offer BTC futures. This includes regulated exchanges like the CME Group (Chicago Mercantile Exchange) and crypto-native platforms like Binance Futures, Bybit, and OKX.
Perpetual Futures: A popular type of BTC future in the crypto space is the "perpetual future" or "perp." Unlike traditional futures, perpetuals don't have an expiration date, allowing traders to hold positions indefinitely. They use a mechanism called a "funding rate" to keep their price close to the spot market price.