Futures are an agreement to buy or sell an asset on a specific future date at a specific price.
Once the futures contract has been entered, both parties have to buy and sell at the agreed-upon price, irrespective of what the actual market price is at the contract execution date. The goal is not necessarily to profit maximization. It’s a risk management tool, often used in financial markets to hedge against the risk of changing prices of assets that are bought and sold on a regular basis.
Futures are also used in portfolios to balance out price fluctuations on investments, where the underlying asset is particularly volatile. These contracts are negotiated and traded on a futures exchange which acts as the intermediary.
Cryptocurrency futuresFutures are not just for physical assets; they can be traded on financial assets as well.
With Cryptocurrency futures, the contract will be based on the price of Cryptocurrency and speculators can place a “bet” on what they believe the price of Cryptocurrency will be in the future. In addition, it enables investors to speculate on the price of Cryptocurrency without actually having to own Bitcoin.
It has two major consequences.
First, while Bitcoin itself remains unregulated, Cryptocurrency futures can be traded on regulated exchanges. This is good news for those who are concerned about the risks related to the industry’s lack of regulation.
Second, in areas where trading Cryptocurrency is banned, Bitcoin futures allow investors to still speculate on the price of Cryptocurrency.