Futures Contract Overview
A Futures Contract is a derivative product and is an agreement to buy or sell a commodity, currency or other instrument at a predetermined price at a specified time in the future. They are either physically settled or cash settled. BaseFEX offers several of its trading products in the form of futures contracts with cash (Bitcoin) settlement.
Futures contracts do not require traders to post 100% of collateral as margin, because of this you can trade with leverage of up to 100x on some of BaseFEX contracts. All margin on BaseFEX is denominated in Bitcoin, allowing traders to speculate on the future value of its products using only Bitcoin.
BaseFEX offers Perpetual Contracts for tracking the price of Bitcoin at the moment. We will open more futures trading products in the near future.
Mechanism of the Futures Market
When trading futures contracts, you need to be aware of several mechanics of the futures market. The key components you need to be aware of are:
- Multiplier: How much is one contract worth? You can see this information under the Contract Specifications for each product.
- Position Marking: Futures contracts are marked according to the Fair Price Marking method. The mark price determines Unrealized PNL and Liquidation.
- Initial and Maintenance Margin: These key margin levels determine how much leverage you can trade with and at what point liquidation occurs.
- Settlement: How and when the futures contract expires, or settles, is important for you to understand. BaseFEX employs an averaging over a period of time prior to settlement to avoid price manipulation. This time frame may vary from instrument to instrument and you should read the individual contract specifications to see when the contract expires and check the individual settlement procedure.
- Basis: The basis refers to what premium or discount the futures contract trades at when compared to the underlying spot price which is usually quoted as an annualized %. Basis exists since futures contracts expire in the future and there is either a positive or negative time value element attached to that expiry uncertainty.