A Comprehensive Explanation of How a Crypto Trader Can Leave Their Futures Position

Market analysts have often touted that Bitcoin futures are an excellent means to introduce liquidity and offer excellent crypto arbitrage opportunities. This is because futures contracts are not held until their expiration date. 

Instead, their trading is similar to other assets. As Bitcoin’s trading value fluctuates, the value of various Bitcoin futures contracts will also vary.

Traders can use three strategies to leave a futures contract position: rollovers, offsetting, and expiry.

Offsetting occurs when a trader makes another futures contract of equal size and value. 

Rolling over is executed by offsetting a position, but it has an expiration date later in the future. 

Expiry entails a contract reaching its end date and the parties holding the contract purchasing or selling at the stipulated price.

Understanding Futures Contracts and Hedging

Hedging is another futures trading strategy. It is a means to avert risk and a critical strategy for addressing cryptocurrencies’ unpredictability. 

One can consider a situation where a trader has purchased three Bitcoins worth $60000 each. She is confident that Bitcoin’s price will increase by the end of the month but intends to safeguard her position if it reduces. Safeguarding her position would entail entering a futures contract to sell a Bitcoin at $62000 at the end of the month. 

If Bitcoin’s price rises at the end of the month, she will generate a profit by selling the other Bitcoins. In case of a price decrease, she will incur a loss, but the losses will be restricted since a Bitcoin can still be sold at $62000.

Further, despite hedging minimizing a trader’s total risk, it does not restrict their potential profits.

Benefits and Drawbacks of Bitcoin Futures Explained 

Bitcoin futures are speculative investments. In its long history, Bitcoin has demonstrated that price unpredictability is the only constant. Despite the possibility of being on a bull run when a trader takes a long position, it is impossible to postulate the cryptocurrency’s future. Speculation at the wrong time would leave one stranded with a worthless future asset.

For successful utilization of features, an investor must comprehend market behavior and have sufficient knowledge to keep tabs on rational market predictions. Besides, the investor should have enough sense to dismiss baseless assertions.

Despite Bitcoin futures being speculative, exploiting excellent information on a best-effort basis is possible. Nevertheless, this is not precisely simple. As such, one can claim that Bitcoin futures are not fully accessible to the average individual. 

The opposite of this is that Bitcoin futures are an excellent means of moving ahead of a favorable market price. The timing would translate into serious profits from exploiting the Bitcoin futures market. 

Counterintuitively, Bitcoin futures do not entail holding any Bitcoin. Instead, it involves trading Bitcoin at a future, pre-stipulated date and at that time’s price. Comprehending the market may not be the most accessible activity. However, one does not require an iota of technology to get involved.

Cash Settlements Explained 

Cash is used to settle Bitcoin futures. No active Bitcoin trading happens in a futures market; thus, there is a need to satisfy agreements by trading at future, pre-agreed prices. Another common benefit of the Bitcoin futures market is the likelihood of settling in cash, eliminating the need for intricate technological expertise or software. 

Margin Trading Explained

Margin trading means an investor only needs a portion of a contract’s total to participate. Exploiting 10-20% of a Bitcoin future illustrates a high potential for profit or loss.

End Thoughts

The Bitcoin futures world is not entirely smooth. In this case, taking on a contract is a solemn responsibility, and the trader must fulfill it if it reaches its expiry date. Futures could result in a significant loss of funds since people could be compelled to purchase Bitcoin beyond its present trading price. Cryptocurrencies are highly volatile; like all cryptocurrencies, trading Bitcoin is perilous.