Yesterday I shared with you the basic concept of futures contract. This kind of investment way of futures contract was first born in the field of commodity trading, which was used by commodity producers as a tool to avoid risks.
What does that mean? Let's take a specific example:
For example, farmers who grow rice will sell rice for $3 a kilo this year, which is a good price. But will rice still be sold at this price next year? Will the price of rice fall because of market changes next year? So in order to ensure that they can also sell rice at this price next year, farmers can lock in the futures market to sell rice at a price of $3 a catty. Of course, in order to lock in this transaction, farmers have to pay a certain fee.
Next year, if the price of rice falls below $3, farmers don't have to worry. They can still sell rice at a price of $3 a catty according to the futures contract.
In futures trading, the price of futures is constantly changing with the market, so in many cases, before the futures have not expired, both sides of futures trading will settle the transaction in advance for various reasons, instead of waiting for the delivery date, real physical delivery occurs.
This situation quickly attracted the attention of speculators - since many futures transactions will not have real physical delivery, it is better to regard futures trading as a means of speculation instead of focusing on the specific trading products of futures trading.
Therefore, the development of futures trading has actually become a flexible way of speculation. In fact, a large number of transactions in futures trading will not be delivered at all.
At this point, we must also mention another concept opposite to Futures Trading: "spot trading".
Spot trading is what we usually call the transaction of hand in money and hand in delivery. We usually buy and sell stocks and commodities on the spot.
In modern finance, almost any field with spot trading has futures trading, and digital currency is no exception. The birth of digital currency trading is not long, but after the birth of digital currency trading, futures trading in this field develops rapidly.
As early as the rise of digital currency trading, some digital currency trading platforms have launched bitcoin based futures contracts. In the early days, there were four kinds of bitcoin contract futures with different maturities launched by crypto facilities, the UK's digital currency exchange. Bitmex, a well-known digital currency futures exchange in the United States, was established in 2014. Bitmex also provides financing leverage services when it sets up futures trading, and the leverage ratio it provides can be arbitrarily selected between 1.01 and 100 times.
There are two sides to everything, and so are futures contracts. They can be used as a good tool to protect the trading price and also as a tool to speculate.
For long-term investors, especially those who hoard money, it can let hoarders continue to hoard money at a good price; but for those who are obsessed with speculation, it is a double-edged sword, from which all the ups and downs of the currency circle come.
As a conservative hoarder of currency, I suggest that you use futures contracts as a way to lock in low prices.
For example, on March 12 this year, the price of bitcoin plummeted. For long-term investors, the lower the price, the better the chance for them to buy. The longer the low price lasts, the more chips long-term investors can buy.
Therefore, on the day of the crash, long-term investors can fully seize the opportunity to buy a quarterly contract and then buy bitcoin at the price that plummeted three months later, and then continue to buy at a low price after a quarter. Now that the price of bitcoin is close to $10000, if we can buy bitcoin hoard at the price of more than $4000, the profit will be considerable.
Of course, most investors who trade contracts in the currency circle prefer to operate it as a speculative way. But there are a lot of pits and traps in this way of operation.
In the next article, I will continue to share with you the pitfalls and pitfalls in futures contract trading。Follow me and learn more!