Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange(CBOE) are going to launch BitCoin futures very soon. So as an Investor how it will affect you. Let Me eXplain.
What is Future Trading?
Let Me eXplain in terms of BitCoin. Today is 5th Dec 2017. Tom and Sam were two BitCoin investors and lets assume current BitCoin price is $10000. Sam tell Tom that I will buy 10 BitCoins from you on Feb 5th, 2018 at $10000. Tom agrees to that and they enter in a contract.
Sam is thinking BitCoin price will go up by Feb 5th and so he can get BitCoin for lesser price since he entered in a contract
Tom is thinking BitCoin price will go down by Feb 5th and he can still sell it at $10000 to Sam and make a profit.
Now there are 3 scenarios possible.
Scenario 1
Lets say BitCoin price went up by $1000 on Feb 5th
1 BitCoin = $11000
Tom buy 10 coin= 10*11000=$110000
Sam buys coin at agreed price of $10000 from Tom=10*10000=$100000
Sam make a profit of $10000
Tom make a loss of $10000
Scenario 2
Let’s say BitCoin price went down by $1000
1 BitCoin=$9000
Tom buy 10 coins = 10*9000=$90000
Sam buy 10 coins from Tom at agreed price of $10000= 10*10000= $100000
Tom makes profit of $10000
Sam makes a loss of $10000
Scenario 3
BitCoin price remain same. No one make profit or loss here
What this means to Investor?
So far BitCoin is an optimistic market. Eventhough it’s volatile market BitCoin always recovered from a dip and it’s price is always rising , a bullish trend. Its all about investors optimism.One person will buy bitcoin and cause price to increase and seeing that another will buy thinking it will rise again and the third one and forth one and this goes on giving the currency an increase in value in every step. Apart from that BitCoin don’t hold a real value like stocks. This hike in value of bitcoin will stop once futures is offered. Because in a future market the main factor is pessimism. Now both force came into picture an optimistic view and a pessimistic view. It will stabilise the currency and prevent huge change is values. So if you bought at a high price and waiting it to increase, it might not be the right time. I cannot vouch on it but this is what I assume. Good luck.
