What is Bitcoin (XBT) Futures?
Futures are simply a contract in which a buyer has an obligation to buy an asset or a seller to sell an asset (such as commodities) at a fixed price and a predetermined future price. In this case, the underlying asset is Bitcoin.
For example, if the current price of Bitcoin is $8,200 per BTC and you expect it to reach $11,000 per BTC in 4 weeks, it is very tempting to have a contract that allows you to buy Bitcoin at 9,500 USD in 4 weeks.
The price of a crypto futures contract evolves linearly with the price of the underlying cryptocurrency. Consider you are negotiating a bitcoin futures contract. If the price of bitcoin increases by 15%, the price of bitcoin futures will also increase by 15%. This feature makes future bitcoin trading a good alternative to direct bitcoin trading. The same case applied to futures contracts that have other cryptos like Ether, XRP, and Tezos. Also, futures are: (a) as integrated leverage, (b) the flexibility required for long or short positions, and (c) low transaction costs.
Futures trading on BaseFEX: BaseFEX currently has futures on bitcoin (BTC) and four leading altcoins: Ethereum (ETH), Ripple (RRP), Bitcoin Cash (BCH), Litecoin (LTC), Binance coin (BNB).
The maximum allowed leverage at BaseFEX is 100x for the BTC and 20x for the rest.
Besides BTC-settled, we also offer USDT-Settled perpetual contracts, and we are currently the only exchange in the world that offers USDT-settled perpetual contracts.
How to Trade BTC (Bitcoin) Futures?
The first thing to know about how to trade Bitcoin futures is that there are no bitcoins. In other words, given that futures contracts are financial cash settlement contracts, no bitcoin changes hands. As in other futures, you speculate on the price of bitcoin and not on the purchase or sale of the underlying cryptocurrency asset.
Options: Call and put, short and long, and leverage
Suppose there are person X and person Y in a future contract deal. Speculator X believes that the price of bitcoin will increase to $1,2000 in 3 months. Buying the $10,000 futures contract is a good deal. He can then sell the contract to whoever wants to buy bitcoin for $10,000. The future call option at a specified price is called the call option. The price of call options increases when traders assume that the price of the underlying asset will rise.
However, Speculator Y might think that the price of bitcoin will drop to $8000. For her, having the option to sell bitcoin for 10000 USD in the future is very attractive. These put options are called put options. The price of put options increases when traders expect prices to fall behind an underlying asset.
The positions of the X and Y speculators are called long and short, respectively: you take a long position on the underlying asset when you speculate the price rise of an asset and a short position on the falling price (also called long "and" short ").
You can now ask yourself, "If I think the price of an asset will go up, why should I buy a call option and not the asset itself?" The answer is: options give you a leverage effect. This means that with limited capital, you can realize much more profit by buying options rather than assets - but also by losing a lot more. Indeed, a small difference in the price of the underlying asset immediately results in a substantial change in the price of the derivative. For example, when bitcoin prices increase from USD 10000 to USD 11000 (a 10% increase), USD 10000 call options suddenly become much more profitable. Therefore, if you have invested 100% of your capital in bitcoin, you will earn 10% - if you have invested in bitcoin purchase options, you will make a profit of 1,000%.
These figures are only examples. The exact price of an option depends on the following factors:
The current price of the underlying asset.
- The so-called intrinsic value of the option, which is simply the difference between the current market price of the asset and the predetermined price in the option (11000 USD - 1000 USD = 1000 USD in this example).
- The time remaining until the option expires
- The volatility of the underlying asset
As to why you should buy a put option instead of the asset itself, the answer is clear. By buying the asset itself, you will never be able to take advantage of the decrease in prices. You can achieve so with put option simply because their value increases with the decline in the price of the underlying stock. In addition to this feature, they offer the same type of operating potential as call options, as described above. The price of the put options is calculated in the same way, with the difference that the intrinsic value is calculated as a predetermined price of the option minus the current market price of the asset - and not the other way around, such as is the case for call options.
It is important to mention; however, that leverage means that your potential losses can also be much higher. If bitcoin prices go down, the call options lose value in a much higher proportion than bitcoin itself. In the above example, if the price of bitcoin goes from $10000 to $9000 (10%), the price of call options can go from $10.5 to almost zero, resulting in a near-zero instead of a substantial loss.
What Can BaseFEX Offer You in Bitcoin Futures trading?
BaseFEX is the only crypto derivatives exchange that puts traders first. We offer the world’s lowest trading fees, highest verified security, 24/7 live support and up to 100x leverage – all without any KYC. You can trade BTC, ETH, XRP, BCH, LTC, EOS and BNB futures with perpetual contracts.