Can I trade crypto futures?

[Sam Button]

[Sheila Olson]

Actually, futures are very popular in the crypto market, with Bitcoin futures products trading on the major exchanges and other crypto futures on the BitMEX. Because the products are cash settled and not settled in Bitcoin, the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) both approved the listings. Crypto futures are derivatives, which mean they derive value from an underlying asset, in this case cryptocurrency. Crypto futures let you speculate and trade on price movements of an underlying currency or basket of currencies. Futures represent an agreement between two parties to buy or sell an asset at a set date in the future for a fixed price, regardless of the actual price of the underlying asset. Once the contract is created, it can also be traded at any point prior to settlement, creating a secondary market in which the buyer or seller of the futures contract never has to take delivery of any cryptocurrency, but simply takes profits (or losses) on the performance of the contract itself. Imagine you are bullish on Bitcoin and you believe it will rise from its current price of $7,000 USD to $8,500 in the next month, a contract allowing you to buy Bitcoin at $7,500 four weeks in the future would be a good investment. Likely, if you think Bitcoin will slide to $6,000 USD next month, a contract to sell it at $7,000 in four weeks is an equally good idea. The benefit of trading futures versus simply trading the cryptocurrency itself is that of leverage. In other words, if you have $10,000 to trade crypto, you could stake out a $10,000 position, or you could put leverage to work and control a much larger position. If the exchange is offering 5:1 leverage on crypto futures, your $10,000 could control $50,000, which maximizes your ability to profit off the trade. Of course, the reverse is true, in that your losses will be similarly magnified. The danger with unregulated crypto exchanges is that some offer extremely low margin requirements, in some cases as low as 1%, or leverage of 100:1, which can result in catastrophic losses if a trade goes against you. Remember, there is no floor on your losses in a futures contract as there is on an options contract. If you’re new to crypto futures trading, you should definitely open a demo account and spend some type learning how the market works, the way the trading platform works, how the order entry system is structured, and how to execute trades. Crypto is extraordinarily volatile, and leverage multiplies the danger to novice traders, so don’t jump in without doing your homework and putting in plenty of practice.