From the origin of futures contracts
The origins of today’s Bitcoin futures go back a long way and lie in the agricultural futures transactions of the 17th century. The deal was very simple: farmers and their future buyers agreed on the price and quantity of a certain raw material and thus secured themselves. The farmers could not only be sure that they would sell their goods. Rather, they were able to calculate with a specific price. On the other hand, buyers were able to protect themselves against a price increase – a win-win situation.
Over the course of the 19th century, the financial system adapted futures trading. Contracts were concluded via the futures transactions, which were henceforth called futures contracts. Ultimately, among other things, they formed credit insurance for banks and were thus fed into the stock market circuit. Today, these futures exist for the majority of all tradable things. Orange juice, soy, oil – or Bitcoin.
What are Bitcoin Futures?
Bitcoin Futures are contracts between two parties that allow them to buy and sell Bitcoin at a fixed price and at a specific time in the future.
After the conclusion of the contract, both the buyer and the seller are obliged to carry out the transaction at the predetermined price agreed upon by them and without taking current market prices into account.
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Short and long positions on Bitcoin Futures
If you enter into such a contract, you can go short or long. Anyone who goes long assumes that the Bitcoin price will rise in the long term. The opposite applies to the shorts. This assumes that the Bitcoin price will fall.
As a result, it is the sellers who are more likely to go long – they have an interest in selling the BTC at a higher price in the future. They set this in agreement with the buyers.
Accordingly, they go short – they bet that the Bitcoin price will fall in the future. They hope that the agreed rate will allow them to “buy” BTC cheaper than the actual rate.
Margin Trading: The Way Out
If a bet ultimately doesn’t go as planned, there is a kind of interim solution: the margin. If the Bitcoin price is higher than expected and the seller would make a loss, the exchanges offer the option of margin trading. This means that the seller can then sell at a lower price – but the contractual partner receives compensation, which was previously deposited as a margin on the respective stock exchange.
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