#SECGuidance $BTC is a type of financial agreement made between two parties to buy or sell a commodity, currency, or another financial instrument at a predetermined price on a specified date in the future. It is worth noting that this differs from the traditional spot trading market, where trades are settled immediately, but in the futures market, a contract is traded that specifies settlement at a future date, without the need for immediate exchange of assets.
In this context, traders do not buy or sell commodities or digital assets directly; instead, they trade a contractual representation of these assets. This means that the actual trading of the assets or cash occurs in the future when the contract is executed. It is worth noting that this type of trading is typically used to hedge against price fluctuations or to speculate on future market movements.
Example
Let’s take an example of Binance futures for a physical commodity, such as wheat or gold. In some traditional futures markets, contracts can be directed for physical delivery, meaning that the physical commodity must be delivered at the end of the contract. Consequently, this requires storing and transporting the commodity, which adds additional costs known as holding and transportation costs.
However, many futures markets today use cash settlement, where the contract is settled with the equivalent cash value instead of the actual delivery of the commodities. Therefore, this means that no physical exchange of goods occurs.
Additionally, the price of a commodity in the futures market can differ from its price in the spot market. It is worth noting that this difference depends on how far the contract settlement date is; the larger the time gap, the higher the holding and transportation costs, and the greater the uncertainty about future prices, leading to an increased potential gap between prices in the spot market and the futures market.
