Futures Definition
Futures are financial contracts that obligate the buyer to purchase an asset, or the seller to sell an asset, at a predetermined future date and price. In the context of cryptocurrency, futures contracts are typically used to speculate on the future price of a particular cryptocurrency, such as Bitcoin or Ethereum.
Futures Key Points
- Futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price.
- In the crypto world, futures can be used to speculate on the future price of a cryptocurrency.
- Futures contracts can be settled in cash or the underlying asset, depending on the terms of the contract.
- Futures can be used for hedging risk or for speculative purposes.
What are Futures?
Futures are a type of derivative financial instrument. A derivative is a contract between two or more parties that derives its value from an underlying asset. In the case of futures, the underlying asset can be a physical commodity, a financial instrument, or a cryptocurrency.
Why are Futures important?
Futures are important because they allow investors and traders to lock in a price for a specific asset, reducing the risk of price fluctuations in the future. They can be used to hedge against potential price movements, providing a level of financial security. In the cryptocurrency market, futures can provide a way for investors to speculate on the future price of a cryptocurrency without having to own the actual cryptocurrency.
Who uses Futures?
Futures are used by a wide range of market participants, including individual investors, traders, and large institutions. They are commonly used by commodity producers and consumers to hedge against price movements. In the cryptocurrency market, futures are used by traders and investors who want to speculate on the price movements of cryptocurrencies.
When are Futures used?
Futures contracts are used when parties want to lock in a price for a specific asset at a future date. They are often used in volatile markets, such as the cryptocurrency market, where price fluctuations can be significant.
How do Futures work?
A futures contract involves two parties: a buyer and a seller. The buyer agrees to purchase a specific asset from the seller at a predetermined price on a specific future date. The seller, in turn, agrees to sell the asset at that price on that date. Futures contracts can be settled in two ways: by physical delivery of the asset or by cash settlement. In a physical delivery, the seller delivers the underlying asset to the buyer on the settlement date. In a cash settlement, the seller pays the buyer the difference between the market price of the asset and the contract price.
