Bitcoin futures:
what is it and how to use it?
Cryptocurrency futures guide for beginners
Disclaimer: This article is not intended to be a source of advice or credit analysis with respect to the material presented, and the information does not constitute investment advice.
On BTC growth's background and other cryptocurrencies' raising, information of launch the crypto futures penetrates the social media - this is one of the most popular topics in the crypto-communities. Bitcoin futures became available from the end of 2017 on the Chicago Mercantile Exchange (CME) and the Chicago Stock Options Exchange (CBOE).

Cryptographic futures are popular both among speculators (they earn by futures) and among institutional investors, who in addition to crypto investments use this tool as insurance for a rainy day. Especially increased demand from institutional investors gave a second life to crypto futures.

They can also potentially influence to regulatory decisions, regarding other financial instruments for bitcoins, such as ETFs.

For investors, who want to speculate on the price of Bitcoin, without actual owning of it, Bitcoin futures provide a viable, regulated way to do this effectively. Besides all, futures can insure itselves against risk and unstable fluctuations in bitcoin prices.
What are futures and what is their role?

Financial futures are a contract (agreement) for supplying of any commodity in the future. Any person, who bought the futures for supplying of wheat, after a stipulated time, received this same wheat at a predetermined price. From this example, it seems like futures are a convenient thing for building business, by making an agreement, both parties save themselves from many risks, their business becomes more reliable and predictable.

However, at the day of delivery the price of the basic asset may be changed, it is already possible to make money on the difference between the rates of the futures and the basic asset – so called speculation.

So, futures-contracts are trading on the regulated exchanges, regularly using for two purposes:

1. Speculation (trying to make money on the changes of price).

2. Hedging (reduction of risk, an analogue of insurance)

On organized markets the existence of such contracts has a beneficial effect on stability of prices for the basic asset. If these futures get more popular, than stronger positive effect reflects.

The most mind-blowing example of such futures is the monthly contracts for supplying of Brent oil.

Except oil person can buy futures for other things, such as wheat, corn, gold, even stock indices.
What are Bitcoin's futures?

Currently, the most of bitcoin-futures are estimated futures, it means that the basic asset is not supplied. If an investor buys such futures at the beginning of April for $ 4 000, waiting for the end of contract at the end of June (3-month estimated bitcoin-futures) at current BTC price for $ 12 000, he receives income, counting of difference between the current value and the price of purchase (+ $ 8 000 income). Another distinctive feature of this futures' type is an ability to make money by reducing the value of the basic asset. Especially that two features made this tool so attractive for investors and speculators.

By selling such futures, investor was insured against a sharp decline in value, while buying bitcoin at specialized sites (hedging).

The next category is a classic deliverable futures, buying such futures at the time of expiration (expiration of the contract), Bitcoin futures is supplied to investor. There is a whole list of brokers, providing the opportunity to trade by crypto-futures, for example, the Bakkt - intercontinental exchange - offers bitcoin futures with physical delivery, but it is still remained at their disposal, because clearing is carried out through a subsidiary.

The organizations. that participate in futures trading on bitcoins, rely on the price of bitcoin for a certain period. Bitcoin futures work in the same way as any futures contract on a traditional financial asset. Investors can either buy Bitcoin for a long time, expecting the price to rise, or reduce it, decreasing the potential losses, if they are really owners of Bitcoins.

Bitcoin futures provide investors with several advantages, such as:

• Firstly, futures are trading on the regulated exchanges, which makes the process much more familiar and convenient for main and institutional investors, who may not want to deal directly with cryptocurrency exchanges.

• Secondly, contracts allow to speculate on the basic price of an asset without having to properly store bitcoins, which is a high barrier for many people to entry, unfamiliar to how bitcoins work.

• Thirdly, by giving to Bitcoin more opportunities for investors, more liquidity is added to the market. Finally, trading of futures can lead to lower Bitcoin price of volatility in the long run and allow investors to protect themselves from adverse price fluctuations.

The most of financial institutions also strive to offer their customers especially the trading on estimated bitcoin futures, since futures are in a regulated field and risks, associated with storing bitcoins, are minimized.
Platforms offering to futures trading against Bitcoin.

CBOE is one of the largest futures exchanges in the world. Due to the lack of demand and the imperfection of the internal accounting system, it is stopped providing these services.

Chicago Mercantile Exchange Group (CME) - Chicago derivatives and futures exchange, is an unconditional leader. Recently it has been announced that bitcoin futures trading has grown on their platform during 2018.

BitMEX is one of the largest cryptocurrency exchanges. Offers futures trading against bitcoin (not available to US citizens).

TD Ameritrade is one of the largest brokerage firms in the world. Recently has launched futures trading against bitcoin.

OKEx - Hong Kong cryptocurrency trading platform, offering bitcoin futures (not available to US citizens).

Nasdaq - The second largest stock exchange (by market capitalization) in the world. Planning to launch Bitcoin futures trading in early 2019.

Bakkt is a future platform of Bitcoin trading and storage, supported by the Intercontinental Exchange (ICE), which owns the NYSE. There were minor launch delays, but according to summer 2019, they are doing well (on July 22, they announced the start-beta - testing the technology of delivery futures).

Also, several companies received licenses from the American regulator, which was not possible before.
The role of Bitcoin futures in the further regulatory progress.

Last summer, the most of news from the crypto world were dedicated to US lawmakers were considering applications for the creation of Bitcoin - ETF. That request was successfully rejected, because Bitcoin is an unreliable asset, and at last the whole system is not built.

Now they have got down to business from the right end.

The US CFTC has issued a number of licenses for clearing and the possibility of selling deliverable futures.

The first type of license allows the company to make calculations and minimize risks.

The second type of license essentially makes it possible to sell a cryptocurrency using stock market mechanisms.

Besides of all, a number of major banks, such as the Goldman Sachs Group, Inc. and Fidelity Investments either expressed interest or launched depositary cryptocurrency solutions.

As we have already mentioned, Baktt, a subsidiary of the Intercontinental Exchange (ICE), has announced plans to offer Bitcoin futures to own customers. And this is a truly important step for the industry.

Baktt's announcement gives the hope in Bitcoin approval - ETF Securities Commission. Previously, these applications in the SEC were rejected precisely because of the lack of a provider (means clearing) and storage.

And it turns out that together with the launch of futures, management companies and maybe even pension funds will have the opportunity to buy this promising instrument. And these are billions and billions of dollars from institutional investors.

According to summer 2019, the potential of private American and pension funds is estimated at half a trillion dollars.

Put together that numbers to the current capitalization of the crypto market, and then you will understand why the start of trading in futures on BAKKT will suit a Bitcoin explosion on July 22.

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