Editor's Note: This article comes fromUnitimes(ID: Uni-times), original title: "Don't Know What Bitcoin Futures Are? "Author: Jhonny, reproduced by Odaily with authorization.
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What are futures?
Usually, when you buy something, the transaction "settles" immediately. I give you $5, you give me three eggplants, and the deal is over.
A futures contract is a bit different. Instead of settling now, we agree to settle at a predetermined price at a specific time in the future.
The counterparty is obliged to fulfill the terms of the contract at maturity, i.e. once the contract expires, the asset must be bought or sold at a predetermined price.
Futures contracts are traded on regulated exchanges and are regulated by regulators.
If I agree to give you $5 (price) to buy 3 eggplants (underlying asset) next Monday (delivery date), this is equivalent to a futures contract. There are other details you need to know, but this is the nature of futures contracts.
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Who Uses Futures Contracts?
There are two main types of users of futures contracts.
1. Commodity producers and consumers wishing to hedge prices
For example, if you grow tobacco, you might sell tobacco futures so that you can lock in the price of your tobacco in case the price of tobacco falls when you bring tobacco to market.
On the other hand, if you manufacture cigarettes, you might buy tobacco futures so you can lock in the cost of your tobacco purchases.
In both cases, you are using futures to hedge against future price changes.
For this type of futures users, buying futures hedges against rising prices, and selling futures hedges against falling prices.
In the example above, the party that grows tobacco hedges against falling tobacco prices by selling tobacco futures, while the party that produces cigarettes hedges against rising tobacco prices by buying tobacco futures.
2. Traders who want to speculate on futures price movements
Another group of people who buy and sell futures are day traders, portfolio managers, hedge funds and other institutional speculators. Speculators are attracted to futures because of their high leverage and relatively quick price swings.
The speculator doesn't actually take delivery of the underlying asset (I can sell oil futures without needing to deliver a barrel of oil), and traditional futures contracts are usually settled in cash.
Current bitcoin futures (such as those launched by exchanges such as CME, BitMEX, OKEx, and Nasdaq) are also cash-settled, but bitcoin futures are expected to be settled in bitcoin through exchanges such as Bakkt, LidgerX, and ErisX in the future (physical delivery).
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What are the benefits of futures trading?
Futures contracts are highly leveraged, which means that traders only need to put up a small portion of the entire contract as margin to profit from the price fluctuations of the entire contract. This allows traders to control larger positions with a small amount of capital.
When you want to short traditional stocks or cryptocurrencies, you have to hold the underlying asset first and pay interest; that is not the case with futures. So futures greatly reduce the friction of short selling.
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Are futures leveraged?
Yes, as mentioned above, one of the compelling aspects of futures is that you can control a large amount of assets with a small amount of cash. The way it works is that you have to keep a certain percentage of the value of the futures contract in a margin account. In bitcoin futures on the Chicago Mercantile Exchange (CME), that percentage is set at 35%.
This feature makes futures trading have the characteristics of high return and high risk. The lower the margin ratio, the greater the leverage effect, and the more obvious the characteristics of high returns and high risks.
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Can I buy bitcoin futures?
Yes, for example, the Chicago Mercantile Exchange (CME) Bitcoin contract size is 5 BTC, so assuming the current price of BTC is 14,000 USD, then the value of each CME Bitcoin contract is 70,000 USD. With the 35% margin requirement, you need to maintain a margin balance of $24,500 to hold a Bitcoin futures contract.
All of this means that, from a financial perspective, the futures market will not offer futures contracts to a large number of retail investors - it is more suitable for deep-pocketed individuals and institutions that can withstand $10,000+ without fear of fall.
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How Will Futures Prices Be Linked to Bitcoin Prices?
Typically, futures prices are close to the "spot" price (spot price = current price of the underlying asset).
A typical situation is that the futures price is slightly higher than the spot price. This is because holding an asset has costs, like you have to store your assets safely (sometimes it is not easy to store Bitcoin safely).
So when you buy a futures contract, it means that you get the benefit of the assets held by others, and at the same time you can use your funds elsewhere and earn interest, which is why futures contracts are usually cheaper than spot contracts. higher.
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How Will Futures Affect Bitcoin's Price?
This is a very important question.
But in the short term, we may see increased volatility as a new class of participants enters the market through Bitcoin contracts, and they can be both long and short.
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LidgerX Delays Launch of Physically Delivered Bitcoin Futures
The LedgerX exchange admitted on Thursday that it has not launched physically-delivered bitcoin futures, as it previously claimed. Earlier, the U.S. Commodity Futures Trading Commission (CFTC) said it did not approve the exchange to launch bitcoin futures.
LedgerX previously stated that it planned to launch the first physically-delivered bitcoin futures contract in the United States on Wednesday, but admitted on Thursday that it failed to launch as scheduled due to lack of CFTC approval. Physically delivered bitcoin futures are contracts that are delivered in actual bitcoins rather than cash.
LedgerX CEO Paul Chou said on Monday: "These bitcoin futures are not only physically delivered, because our customers can get bitcoin after the futures expire, but they can also deposit bitcoin first to trade. "
But on Thursday morning, the CFTC’s chief communications officer, Michael Short, said in an emailed statement: “LedgerX has not been approved by the committee.”
In fact, one only has to look at the LedgerX data page to see that only options and swaps took place this Wednesday, but no futures.
Subsequently, the company’s chief operating and risk officer, Juthica Chou, admitted that the company does not yet trade futures contracts. "We're still operating and we're taking the product to retail," she said.
The CFTC approved LedgerX as a Designated Contract Market (DCM) last month, one of two approvals needed for the company to continue launching futures. Another approval is required to amend its license to register as a Derivatives Clearing Organization (DCO).
LedgerX is currently authorized to clear swap contracts, but not yet authorized to clear futures contracts. In a press release from the CFTC on June 25, the regulator noted:
"Since July 2017, LedgerX has been registered as a Derivatives Clearing Organization (DCO), and since June 24, 2019, LedgerX has also been registered as a Designated Contract Market (DCM)...LedgerX has requested the CFTC to Its registration as a DCO was amended to allow LedgerX to clear futures listed on its DCM, as the DCO license limits LedgerX’s clearing scope to swap transactions.”
Under CFTC rules, the regulator has 180 days to approve or deny applications for DCOs.
"We submitted the amendment on November 8, 2018, more than 180 days ago, and we don't know why this happened [without approval]," said Juthica Chou, who seemed to be implying that due to this period Having passed, without objection from the CFTC, the company felt it was clear to continue.
But a senior CFTC official said LedgerX needed explicit approval. "Every application for a new or modified DCO must be expressly approved by the CFTC. The absence of a decision does not imply approval," the official said, speaking on condition of anonymity.
Still, the senior official said that LedgerX’s DCO application “appears to be in the final stages of the approval process.”
Bakkt to Launch Physically Delivered Bitcoin Futures 'In the Near Future'
Jeffrey Sprecher, head of the Intercontinental Exchange (ICE), the parent company of the Bitcoin futures platform Bakkt, said on Thursday that the Bitcoin futures platform Bakkt is preparing to launch a physically delivered Bitcoin futures contract soon, but he did not give a specific time. surface.
Jeffrey Sprecher said on the quarterly earnings call that Bakkt is "working hard to develop a regulated ecosystem that serves the changing needs of (participants) around the world." There are plans to launch physically delivered Bitcoin futures in the near future.”
ICE first announced in August last year that it would launch an ambitious plan to establish the US bitcoin futures exchange Bakkt and provide physically delivered bitcoin futures contracts, and will cooperate with Microsoft (Microsoft), Starbucks (Starbucks) and Boston Consulting Group. Company (BCG Consulting) to cooperate.
While ICE initially planned to launch the Bakkt platform in December 2018, Bakkt has been delayed multiple times and there is currently no firm launch date. Recently, the Bakkt Bitcoin futures contract was being tested.
Bakkt originally planned to approve its futures contracts through the Commodity Futures Trading Commission (CFTC), but has not yet obtained the status of a qualified custodian recognized by CFTC. CFTC Chairman Christopher Giancarlo once talked about the reasons for Bakkt's obstruction. He said that one of the challenges facing the agency is to evaluate futures How exchanges store cryptocurrencies.
The company is currently awaiting a trust license from the New York Department of Financial Services (NYDFS). Once the NYDFS approves Bakkt’s delivery warehouse, the company will be able to launch physically delivered bitcoin futures contracts.
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Reference link:
1.https://medium.com/swlh/the-5-minute-guide-to-bitcoin-futures-804a4935b583
2.https://www.coindesk.com/what-happened-why-the-first-us-physical-bitcoin-futures-contracts-havent-launched
3.https://www.coindesk.com/ice-ceo-bakkt-will-launch-in-very-near-future
