A brief description of cryptocurrency futures contracts

Traders can choose from a number of different futures contracts. It’s worth noting that most platforms don’t provide all of the listed types, so choose a futures exchange that offers all of them.

Futures with Physical Delivery 

There is also the option of physical delivery futures, another type of cryptocurrency futures with expiry dates. Bakkt, an entity backed by ICE, the parent company of the New York Stock Exchange (NYSE), introduced them first. Cryptocurrencies are delivered during settlement, which is the only difference between regular futures described above.

Currently, Bakkt offers only Bitcoin futures with physical delivery, which means that Bitcoin is transferred to the buyers of the futures at the expiration date. This approach contributes to the circulation of Bitcoin as a cash-settled futures contract.

Standard Futures Contracts

In addition to expiration and settlement, standard cryptocurrency futures have all the characteristics of a standard future from traditional markets. In December 2017, Chicago-based CME Group and CBOE launched Bitcoin futures contracts. In fact, this was one of many reasons why BTC reached a record high at the time, until BTC broke its all-time high of $20,000 in 2020.

In today’s market, CME offers a variety of Bitcoin future contracts with varying expiration dates, as you can see from its Bitcoin Futures Calendar. The CBOE has decided to discontinue its Bitcoin futures contracts, but they will definitely bring them back in the near future as interest in cryptocurrencies is surging. All contracts are settled in U.S. dollars at the expiration date.

Some crypto exchanges, on the other hand, do offer standard futures contracts. Most of these exchanges, such as Bybit, FTX, Deribit, and Binance, offer quarterly Bitcoin futures, which are generally negotiated in U.S. dollars. In most cases, these contracts are settled every three months, which makes them ideal for swing trading. 

Perpetual Contracts 

Since perpetual contracts do not have an expiration date, they quickly became popular on BitMEX, and were soon adopted by major Cryptocurrency Trading Platforms, such as BBTC, Bybit, FTX, and ICE.

Traders are paid based on their open positions at certain hours in perpetual contracts. Funding is the primary mechanism that keeps perpetual contracts as close to the spot price as possible. A trader who has a long position pays a trader with a short position, while a trader who has a short position pays a trader with a long position when the funding rate is negative. 

Bybit trades perpetual contracts in USDT and other stablecoins, with funding payments every eight hours.

In comparison to conventional futures exchanges, the crypto perpetual futures market has grown rapidly, but there is still room for improvement.

Despite the significant drop in crypto prices in 2022, transactions for perpetual futures have not been affected as much. According to coinglass data, average futures volumes still range between $50 billion and $200 billion.

The top exchanges as well as decentralized exchanges will continue to compete in the area of crypto futures, which has huge potential.

Risks of Futures Trading

A lot of experts are of the opinion that the underlying crypto market does not have the maturity to support a futures market. Such critics contend that Bitcoin’s instability might spread to other parts of the futures market, causing other parts of the market to become unstable as well. As far as Crypto Futures Trading platforms have been reported, no significant incidents have taken place, as most of them are not susceptible to hacking attacks, as opposed to regular crypto exchanges that store clients’ crypto holdings. As an example, trading futures on Bybit is a smooth, convenient and convenient way to do so.

Even so, there are risks that are associated with market volatility, a market that is open 24/7, poor trading strategies that have been adopted from traditional markets without any adjustments, and higher-than-recommended leverage, which makes it appealing for beginners.

About the author

Debbie Echols

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.