Author Topic: 3 Things to Know About BTC Futures  (Read 5 times)

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3 Things to Know About BTC Futures
« on: July 01, 2020, 08:09:26 AM »
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Bitcoin is massively successful. Trading at the $10k margin, the coin seems to be the real deal when investing in the crypto world. However, it comes with tons of challenges. The high volatility and susceptibility to financial crimes make some traders shy away from the coin. That is where the Bitcoin Futures come in.

Instead of owning the risky coin, Bitcoin Futures and other derivatives allow investors the liberty of reduced risks. Market experts run the Futures in some of the most regulated outfits making it quite safe. Futures also come with secure contracts and price stability making it an ideal investment.

Here are three main things to know about Bitcoin Futures;

1.    Bitcoin Futures is Highly Regulated
Unlike Bitcoin, which is mostly unregulated, Bitcoin Futures is highly regulated. Given that it is traded on the traditional exchange markets, it has to comply with all the underlying regulations. For example, in the U.S., Bitcoin Futures are traded on the designated contract markets (DCM) regulated by the Commodity Futures Trading Commission (CFTC).  The sites must also get approval from the U.S. Securities and Exchange Commission (SEC).

CFTC only allowed a few platforms to offer the Bitcoin Futures and the other derivative products. Some of the cleared platforms are Bitnomail, CME, and Ledgerx.

Even though the regulations might vary from each country, they all provide for strict regulatory conditions; the markets must meet before trading. The rules are one of the reasons why Bitcoin Futures are considered safer than the other cryptos.

Even though such regulations might seem harsh, any broker looking to succeed must comply; otherwise, they are headed for failure.

2.    Bitcoin Futures Has Several Entry Barriers
Even though Bitcoin Futures seems like the ideal way to acquire crypto, it is quite limiting. Unlike the cryptocurrency where organizations can easily access through payment processors, Bitcoin Futures is littered with barriers.

One of the significant barriers is the need for a custodian. While most of the top tire institutions can venture into the trade, the need for custody still keeps them at bay. Any financial institutions with funds of more than $150 million must work with another third-party who holds their assets for security.

Instead of investing by themselves, these companies are forced to acquire other smaller entities to join the system. For example, Coinbase acquired Keystone Capital, a securities dealer while Nomura Holdings, a Japanese investment bank, got Komainu as its custodian.

The other entry barrier that comes with the Bitcoin Futures is the limited trade. Unlike the traditional exchange markets where one trades depending on their margin, the crypto has limitations. Being a new currency, the supply of the crypto coins is still low in the market. Any increase in demand leads to increased prices.

The control also helps with the sustainability of the coins. There is always the risk of dumping due to a fall in prices. To avoid such cases, Bitcoin provides for the sale and buy limits. Other than the enforced regulations, trading more significant transactions take more time, and most investors are not willing to wait.

3.    Risk of High losses
If you invest in Bitcoin Futures only with the prospects of gaining from the high price increases, you might want to consider your choices. Bitcoin Futures is one of the riskiest investments. Most of the brokers tend to warn prospective clients through a detailed risk disclosure. They also encourage the clients to only invest after understanding the risks involved.

One of the significant risks that come with Bitcoin Futures is their margin nature. It applies that there is a possibility of losing more than your initial investment. Unlike in most forex brokers where traders are insured against the margin loss, trading Bitcoin Futures requires you to pay the rolled-on fees.

The other risk that comes with the Bitcoin Futures is the volatility. Bitcoin prices are never settled. There is always the possibility of a change within seconds. The sudden changes in the value of Bitcoin increase the risks of trading Bitcoin Futures and options.

Even though the Bitcoin Futures trading comes with strong regulations, the underlying currency, Bitcoin, is mostly unregulated. It means the coin is susceptible to financial crimes like fraud and manipulation, which affects the Bitcoin Futures security.

Your trading position on the trading platform also comes with considerable challenges. Even though a “short” position comes with security on potential loss, your losses deepen if the broker holds trade due to sudden price changes. Such changes can also affect traders in the long run.

Bottom Line
Understanding what to look at when investing is the best way to ensure security. Bitcoin Futures are the real deal due to the high regulations. Otherwise, it also comes with many barriers and a high risk of loss.
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