What are futures and why should I trade them?
Why should I trade futures?
Trading futures can be advantageous in a number of ways compared to trading the underlying asset directly:
- Futures allow benefiting from price increases as well as declines
- Futures provide financial leverage
- Futures can be used to hedge price risk
- Futures are associated with low transaction fees
What instruments do you list?
We currently list:
- Futures on the US Dollar price of Bitcoin
- Futures on the US Dollar price of Ether
- Futures on the US Dollar price of Litecoin
- Futures on the US Dollar price of Ripple XRP
- Futures on the US Dollar price of Bitcoin Cash
- Futures on the Bitcoin price of Ripple XRP.
Futures come with a perpetual, monthly, and quarterly maturity schedule:
| Bitcoin-Dollar Futures | Ether-Dollar Futures | Litecoin-Dollar Futures | Ripple-Dollar Futures | Bitcoin Cash-Dollar Futures | Ripple-Bitcoin Futures | |
| Ticker | FI_XBTUSD | FI_ETHUSD | FI_LTCUSD | FI_XRPUSD | PI_BCHUSD | FV_XRPXBT |
| Inverse | Inverse | Inverse | Inverse | Inverse | Vanilla | |
| Contract Size | 1 US Dollar | 1 US Dollar | 1 US Dollar | 1 US Dollar | 1 US Dollar | 1 Ripple XRP |
| Max Leverage | 50x | 50x | 50x | 50x | 25x | 50x |
| Maturities | Perpetual, Monthly, Quarterly, Semiannual* | Perpetual, Monthly, Quarterly, Semiannual* | Perpetual, Monthly, Quarterly | Perpetual, Monthly, Quarterly | Perpetual, Monthly, Quarterly | Perpetual, Quarterly |
What does inverse mean?
Inverse futures just mean that the payoff structure for your position is non-linear. The P&L is calculated so that the profit on the collateral you use matches the denomination of the contract as price adjusts.
For example, in Bitcoin-Dollar, because you are using Bitcoin as collateral and the contract is denominated in USD, as the price falls, the payout in bitcoin has to be higher to match the Dollar value. This means that if the Bitcoin-Dollar price goes up 10% your payoff is 9.09% and if it goes down 10% your BTC payoff is 11.1%.
What does a typical trade look like?
Example Inverse Futures:
You think that the price of bitcoin will increase against USD and buy 10,000 Bitcoin-Dollar Futures at 5,000 USD per bitcoin. Every Futures has a contract size of 1 USD. The price of bitcoin actually increases and you are able to sell the Futures at 6,000. Your PnL is calculated as:
( 1 / Entry Price – 1 / Exit Price ) * Position Size = (1 / 5,000 – 1 / 6,000) * 10,000 = 0.33 bitcoin
Example Vanilla Futures:
You think that the price of Ripple XRP will increase against bitcoin and buy 10,000 Ripple-Bitcoin Futures at 0.00005 bitcoin per Ripple XRP. Every Futures has a contract size of 1 XRP. The price of Ripple actually increases and you are able to sell the Futures at 0.00006. Your PnL is calculated as:
( Exit price – Entry price ) * Position Size = (0.00006 – 0.00005) * 10,000 = 0.10 bitcoin
Which maturity should I trade?
It depends on your trading objective. Our perpetual futures can be used for keeping long term positions open, without the need to roll your position and these contracts tend to have the greatest liquidity. There is a funding rate associated with these contracts, which can be positive or negative – you can read more here. The fixed maturities (month and quarter) may better suit your needs for hedging purposes – you can read more here.
What happens if I hold a position until maturity?
Your position will be cash settled at a rate representing the underlying spot market.
Do you have a “socialised loss” system, “claw-backs” or something similar?
No. If you buy, we match you with a seller, and if you sell, we match you with a buyer. If you make a profit, this profit will come from other traders’ losses on the platform. As a neutral exchange, we manage the margin of counterparties in real-time and transfer any profit and loss. If a liquidation can not be filled, it goes through an orderly unwinding process that attempts to first assign it to a marketmaker and then terminate the avoid system losses as last resort. Thus, the risk management system is designed to not sustain losses that would require schemes like “claw-back”.
Why do futures prices differ from the spot prices?
In mature financial markets, this price difference is determined by technical factors such as interest rate differentials, dividends or storage costs. In the case of bitcoin and other digital assets, the price difference is mostly driven by supply and demand imbalances. For instance, bitcoin Futures have generally traded at a premium to the spot price in the past. This indicates that there is a high demand to buy bitcoin on a leveraged basis.
*The Semiannual contracts for FI_XBTUSD and FI_ETHUSD will begin trading at 1600 London time on the 3rd of July, 2020