Bitcoin futures trading is available at TD Ameritrade. Quotes and trading capabilities for these futures products are available on our thinkorswim trading platforms. May 07, · Bitcoin futures are a type of derivatives contract designed to offer traders increased trading flexibility and precision. As Bitcoin derivatives, these contracts track the underlying value of Bitcoin and describe the terms of an agreement between two parties—a buyer and a seller. Next Level Trading with Cryptocurrency Futures Bitcoin and digital assets are volatile investments. Many traders attempt to manage their risk simply by buying an asset when the price drops or selling it when the price goes up. The downside of this tactic is that oftentimes money is left on the table after you leave the market.
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Learn about our Custom Templates. Switch the Market flag above for targeted data. Open the menu and switch the Market flag for targeted data. Need More Chart Options? Right-click on the chart to open the Interactive Chart menu. The price of coffee alone has fluctuated by more than percent in the past 10 years.
In the past year, it has jumped by 12 percent before diving by 30 percent, before ticking back up by five. Trying to resell a barrel of coffee beans as a traditional investor would be problematic. This uncertainty is inherent to bitcoin trading as well since the market is driven by a considerable level of speculation. To deal with this, commodities traders rely on futures contracts. A futures contract allows the trader to invest specifically in volatility. Instead of having to predict the right price at which to sell, a futures trader invests in price direction.
For instance, in buying bitcoin outright, a trader would have to choose a purchase price and then decide at what price to sell. Both of these involve precise decision-making and timing. This is tremendously difficult to pull off in the unpredictable bitcoin market.
A futures contract would allow a trader to peg a future price point. At the time of writing, bitcoin has a day volatility estimate of 3. In raw terms, the price of a single bitcoin has swung by thousands of dollars within the last year.
This makes it hard to predict how and when, exactly, to sell your bitcoin. As with all commodities, the risk is always there. If you sell too soon, you may miss out on riches; sell too late and you may take a bloodbath. A futures contract helps with that as it does not cap potential gains.
Trades are made on direction and volatility, not price prediction. There are few, if any, easy ways to make money off falling prices when you hold an altcoin. For this reason, markets like bitcoin tend toward speculation bubbles. Traders only have one option: buy low and hope to sell high, creating a speculation feedback loop which inflates the value of the altcoin. For a highly volatile asset, this opens up far more opportunities to profit.
The altcoin market crash in December might have been inevitable. However, if there had been short positions in place, perhaps losses could have been mitigated.
Short positions create an entire investor class built around breaking speculation feedback loops. This allows them to profit from downward price swings as well as bring an overly exuberant market back to its senses. In hedging, investors buy future positions against their current holdings. It is similar to taking out an insurance policy.
If the route to your workplace is accident-prone and you pass through that area every day, you will want to protect your car from the risk of accident liabilities. Therefore, you hedge it by taking out vehicle insurance. In the bitcoin world, an investor buying bitcoin would also buy short positions against the asset, while someone selling their bitcoin would accompany that sale with a long contract.
This allows the individual to hedge his or her bets against future market movements. With that being said, there is a trade-off in hedging your bitcoins since hedging is not free. Yet, most people would choose to take that predictable loss rather than risk suddenly losing all their positions. Futures contracts were invented, in part, to specifically deal with the volatility and unpredictability of the commodities marketplace.