Hello steemit friends, how are you guys doing today? We are going to talk about something educational today and that is what bitcoin future is. For some weeks now we have been hearing the word ‘bitcoin future’ everywhere all over the media while some of us keep wondering what it really is. Don’t worry if you have not really understood what bitcoin future really is because I’m going to explain what it is in this little post so sit tight and learn with me.
Before going straight into understanding what bitcoin future is, let us know what ‘future’ is when it comes to market setting.
Futures are an agreement to buy or sell a particular asset on a specific future date at a specific price that is, both buyer and seller of that asset agreeing to buy or sell the asset at a particular price without actually knowing what the price will be in the future. Once this future contract has been agreed-upon, both parties involved in the transaction will buy or sell the asset at the agreed price irrespective of what the actual market price is on the day of contract execution.
The sole aim of this future contract is not really to maximize profit rather it is a risk management tool used in financial market, to protect against high fluctuating nature of asset prices.
A good way to explain this is by using a fuel supplier who supplies fuel to client. Since nobody knows what the price of fuel will be in the future, let’s say in three months’ time. Both the fuel supplier and the client may decide to enter a future contract agreeing on the price they would buy or sell the fuel from that very moment to three months’ time irrespective of what the actual market price is in three months’ time. By doing this, both the buyer and seller have protected themselves against the fluctuating price of fuel.
What is bitcoin future?
Just as the physical assets can be entered in a future contract, bitcoin can be entered in a future contract as well. In bitcoin future contract, the price will be solely based on the price of bitcoin where speculators would place a buy or sell order on what they believe the price of bitcoin will be in the future. It actually enables investors to speculate on the price of bitcoin without owning any.
There are two positions an investor would take on bitcoin futures contract; long and short positions. If you take a long position, you agree to buy bitcoin at a specific price in the future once the contract expires. When you take short position, you agree to sell bitcoin at a specific price in the future.
Investors would take long position when the price of bitcoin is relatively low, as the price of bitcoin increases, the contract becomes profitable. The same goes to taking a short position or contract when the price is too high, as the price of bitcoin drops, the contract becomes profitable too.
This is really what bitcoin futures contract are, hope you understood it? Thanks for reading and don’t forget to upvote, resteem and comment.