What Are Quarterly Futures And How To Trade Them?
Futures contracts are financial instruments used in trading, where buyers and sellers agree to exchange assets at a predetermined price and date. Unlike directly owning the underlying asset, such as a cryptocurrency, futures contracts represent an agreement to track its price movements.
In the futures market, participants can take two positions: going long or short. Going long means anticipating and profiting from a price increase, while going short enables one to benefit from price declines. Regardless of the position taken, once the agreed-upon date arrives and the contract expires, both parties settle their obligations. It’s important to note that not all futures contracts have a fixed expiration date. Some are called perpetual futures, as they do not have a specific expiration date.
There are two popular types of crypto futures: perpetual futures and quarterly futures. Perpetual futures do not have an expiry date and allow traders to hold positions indefinitely. On the other hand, quarterly futures have a set expiration date, determining when the contract is settled. This article will focus on quarterly futures and explore how they work.
What are quarterly Futures
Like general futures contracts, quarterly futures contracts require both the buyer and seller to fulfil the contract at a designated time quarterly, regardless of the underlying asset’s current price.
Quarterly futures are a popular form of futures trading with a specific expiration date. These contracts expire precisely on the last Friday of every quarter, offering investors a convenient way to monitor and strategize their investments, similar to standard future contracts. By adhering to this structured timeline, investors can effectively manage their trading activities and make informed decisions.
How Do Quarterly Futures Work?
Let’s take the example of the BTCUSDT Quarterly 0925 futures contract. The contract’s name indicates the underlying asset (BTCUSD) and the expiration date (0925). This particular futures contract is quoted and settled in BTC, meaning that BTC is used as collateral for trading.
The BTCUSDT Quarterly 0925 futures contract expires on the last Friday of the relative three-month period, specifically on September 25, 2023, at 08:00:00 UTC. A fixed 0.015% delivery fee applies to all settled positions on the delivery date.
The BTCUSDT Quarterly 0925 futures contract follows a cash-delivery mechanism known as cash settlement. In this process, the underlying asset is not physically exchanged. Instead, all open positions are settled based on a designated settlement price, which is typically determined using an index-based last-hour moving average price.
Quarterly futures contracts offer traders numerous advantages, making them a valuable tool in the financial market. Unlike traditional futures contracts, which expire on a yearly basis, quarterly futures have a specific quarterly expiration date. This unique characteristic allows traders to design their trading strategies around shorter intervals, providing them with enhanced flexibility and the ability to make adjustments more frequently.
Perks of Quarterly Futures
One of the primary benefits of quarterly futures is the increased frequency of price discovery events. With quarterly contracts, traders have more opportunities to assess market forces and react promptly, enabling them to adapt their trading positions in a timely manner. This regular price discovery mechanism facilitates efficient decision-making and ensures that traders can capitalize on market fluctuations effectively.
Moreover, quarterly futures contracts offer enhanced liquidity and lower margin requirements compared to other types of futures contracts. Additionally, they adhere to harmonized global standards for pricing and risk management. This standardization fosters a more transparent and accessible market, attracting traders seeking to capitalize on opportunities in the global arena. The increased liquidity in quarterly futures markets is particularly advantageous, as the quarterly delivery cycle encourages greater participation from a more significant number of traders, leading to improved trading opportunities.
Ultimately, quarterly futures contracts cater to the needs of traders seeking short-term trading opportunities and those who prefer frequent trading with renewed exposures over longer durations. The flexibility, regular price discovery, liquidity, and global standards associated with these contracts make them an appealing option for traders looking to navigate the financial markets effectively and seize opportunities as they arise.
Wrapping Up
Overall, quarterly futures provide a trading option that involves specific settlement methods for futures contracts. While this type of trading allows you to take leveraged positions and the underlying cryptocurrency at a fraction of its total market value, the choice of trading quarterly futures in a given scenario hinges upon your objectives and various other factors, considering that each option is tailored to meet the specific requirements of individual traders.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
