Bitcoin Futures and How They Work on LBank
Over the past decade, Bitcoin (BTC) has accrued massive explosions, opening the door for several innovations in the crypto market.
In October 2017, Bitcoin essentially gained a foothold in the financial market space when CME Group, the world’s largest derivatives platform, launched trading of Bitcoin futures contracts.
This huge move essentially opened the cryptocurrency market for institutional investors, and crypto exchanges such as LBank ensure both parties involved in a contract to buy or sell a commodity (bitcoin) for a specific price at a specified time in the future fulfill their respective obligations.
This short guide will explain the concept of Bitcoin Futures and how they work on the LBank Exchange.
What Is Bitcoin Futures Contract?
Bitcoin Futures contract is one of the derivative products that allow Bitcoin to be traded at a predetermined future price at a precise time.
To fully understand the concept of futures contracts, let’s use this example. Say: A farmer may sell futures contracts on 200 pieces of carrot at the price of $20 per one to a buyer. Doing this, the farmer has stamped the price of $20 per carrot when it’s harvesting time.
So the buyer is also required to pay the purchase price of $20 per carrot. The farmer is hedging against a price decrease in carrots while the buyer is expecting the price of carrots to be higher than $20 during the carrot’s harvest time.
Ultimately, Bitcoin futures contract allows buyers and sellers to trade without actually owning the asset. Also, Bitcoin Future contracts get their value from the underlying price of Bitcoin’s price, and their ultimate goal is to help traders make trading decisions that involve technical and fundamental analysis of bitcoin’s price fluctuations
How Does Bitcoin Futures Trading Work?
Bitcoin futures are agreements between two parties to predict future price fluctuations to either hedge the market or take advantage of the price movements without actually owning the crypto asset.
To get involved in a futures contract, you are obligated to provide marginal collateral in a certain percentage of the contractual value and pay a certain exchange fee. LBank contract transaction fees include 0.04% on Taker and 0.02% on Maker. You can always calculate the LBank contract transaction fees here.
If Bitcoin’s price rises above your futures contract, you will make a profit. In contrast, if the Bitcoin price decreases, you will make losses as you will have to pay the price differences to manage your collateral.
Traders can also profit from predicting future price movements before expiration. Although the price of a futures contract depends on the base asset, it may rise or fall. It all depends on the asset’s price and the spot market patterns.
Futures vs. Spot Trading
A Bitcoin futures contract is completely different from a “spot” contract, mainly in terms of the date of execution of the contract. Typically, a spot contract order is executed immediately after the contract is made, whereas a bitcoin futures contract is executed at a prearranged Bitcoin’s future date.
Why Trade Bitcoin Futures on LBank?
- Simple Interface
LBank offers a comprehensive and user-friendly interface for anyone interested in trading bitcoin futures. It appeals to both expert traders and beginners
- Security
LBank uses industry-leading security to secure users’ accounts
- All-inclusive Platform
Since LBank offers all the major trading derivatives, you can easily find your way around.
Risks of Crypto Futures Trading
While there are several benefits attached to trading crypto futures, there are several downsides and cons as well. Crypto Futures contracts rely on the future price of bitcoin, which is often unpredictable.
For example, if you were to buy bitcoin, you would need the price of bitcoin to increase in the future to earn profit. If by any chance the price reduces, you might lose money.
If you’re considering trading bitcoin futures, you can reduce your investment risk and maximize your chances of making profits by doing your own extensive research.
Thanks to the top LBank exchange that guarantees maximum security of your crypto assets. You can trade bitcoin futures contracts directly on the exchange and explore different resources to assist you with your trading investing journey.
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