Futures contracts on crypto?
Hey. On one cryptocurrency exchange I came across a futures tab. I don't really know what it is and if it's worth buying. Can someone explain to me in a simple way what futures contracts are? Thanks in advance.
Hey. On one cryptocurrency exchange I came across a futures tab. I don't really know what it is and if it's worth buying. Can someone explain to me in a simple way what futures contracts are? Thanks in advance.
8 users upvote it!
6 answers

The future contract is a variant of the forward- contract, i.e. a contract concluded at a given moment and covering the delivery of goods at a given date in the future at a price agreed upon at the moment of concluding the contract.
The difference between future and forward contracts is that the trade in future contracts takes place on organized exchanges. The terms of the contract are also precisely defined. The largest volume of trading takes place on the financial markets of futures contracts for shares and bonds. The implementation of the contract consists of a cash settlement of the liabilities that result from its change.
In the case of financial futures contracts, transactions are constructed on the basis of financial instruments such as debt instruments or financial indices. As far as currency futures are concerned, the contract includes delivery of a specific amount of foreign currency at a specific moment in the future in exchange for a fixed amount.
The future contract is a variant of the forward- contract, i.e. a contract concluded at a given moment and covering the delivery of goods at a given date in the future at a price agreed upon at the moment of concluding the contract.
The difference between future and forward contracts is that the trade in future contracts takes place on organized exchanges. The terms of the contract are also precisely defined. The largest volume of trading takes place on the financial markets of futures contracts for shares and bonds. The implementation of the contract consists of a cash settlement of the liabilities that result from its change.
In the case of financial futures contracts, transactions are constructed on the basis of financial instruments such as debt instruments or financial indices. As far as currency futures are concerned, the contract includes delivery of a specific amount of foreign currency at a specific moment in the future in exchange for a fixed amount.

Futures contracts belong to the group of derivative instruments. They differ from shares and debt instruments mainly in the fact that their main purpose is not capital transfer, but risk transfer.
Derivatives appeared on a wider scale on financial markets in the seventies. The reason for their introduction was the increase in the volatility of currency exchange rates, interest rates, share prices and commodity prices, which could be observed on the world markets in that period. The increase in the volatility of financial instrument prices means an increase in the risk of investing in these financial instruments.
It is in order to reduce the risk that derivative instruments were introduced. The existing patterns were used here, as derivatives exposed to commodities had previously been traded on commodity exchanges - their task was to reduce the risk associated with changes in commodity prices, and more specifically to hedge against an increase or decrease in commodity prices.
Futures contracts belong to the group of derivative instruments. They differ from shares and debt instruments mainly in the fact that their main purpose is not capital transfer, but risk transfer.
Derivatives appeared on a wider scale on financial markets in the seventies. The reason for their introduction was the increase in the volatility of currency exchange rates, interest rates, share prices and commodity prices, which could be observed on the world markets in that period. The increase in the volatility of financial instrument prices means an increase in the risk of investing in these financial instruments.
It is in order to reduce the risk that derivative instruments were introduced. The existing patterns were used here, as derivatives exposed to commodities had previously been traded on commodity exchanges - their task was to reduce the risk associated with changes in commodity prices, and more specifically to hedge against an increase or decrease in commodity prices.

In a nutshell, it is simply a contract to buy/sell a certain asset at a certain time in the future at a predetermined and known price. Originally, the task of futures contracts was to protect the parties to the transaction from an adverse change in the price of the underlying instrument/product in the future. Therefore, at the beginning, futures contracts mainly concerned commodity markets and were related to the physical delivery of the product.
Example:
A very popular illustration of the operation of a commodity futures contract is the example of a fruit grower who grows apples and a grocery store owner who, among other things, sells fruit. Both of them do business in uncertainty. They do not know the future and do not know whether apple prices will be low or high at the end of the season.
Both of them want to protect themselves. The shopkeeper will be protected from a drought, which will cause very high crop prices (few apples) and the fruit grower will produce many apples, so the price will be low (small profits). In order to protect themselves, they conclude a purchase/sale transaction of 100 kg of apples at a price of 1.5 USD per 1 kg.
They concluded a forward transaction - because the fruit grower sold the apples, which will not grow until the end of summer, and the shopkeeper bought them with delivery at the end of summer. This product does not exist physically.
What did they gain? The shopkeeper will get apples at a price not higher than 1.5 USD per kg in the future. If there was a drought and the apples did not yield, their price could jump over e.g. 2 USD. But it also bears the risk. If there is a harvest and there are many apples, it turns out that they cost e.g. 1 USD per kg and the trader will overpay. The orcharder will pay over the price. If there will be a lot of apples and their price drops to 1 USD per kg in wholesale, he will receive a bonus for the risk taken, because he has a 100 kg sale at 1.5 USD. But if there is a drought, he could sell these 100 kg much more expensive.
Currently there are futures contracts for goods, stocks, stock indices, interest rates, currencies, even as exotic as a contract for a temperature level in a certain place and time.
The introduction of futures contracts detached from the physical delivery of a given underlying instrument (i.e. we are only dealing with the financial settlement of a derivative instrument) has brought about a significant increase in their popularity. They ceased to serve only to protect themselves against an unfavorable change in the price of the underlying instrument, and became the subject of lively speculation.
In a nutshell, it is simply a contract to buy/sell a certain asset at a certain time in the future at a predetermined and known price. Originally, the task of futures contracts was to protect the parties to the transaction from an adverse change in the price of the underlying instrument/product in the future. Therefore, at the beginning, futures contracts mainly concerned commodity markets and were related to the physical delivery of the product.
Example:
A very popular illustration of the operation of a commodity futures contract is the example of a fruit grower who grows apples and a grocery store owner who, among other things, sells fruit. Both of them do business in uncertainty. They do not know the future and do not know whether apple prices will be low or high at the end of the season.
Both of them want to protect themselves. The shopkeeper will be protected from a drought, which will cause very high crop prices (few apples) and the fruit grower will produce many apples, so the price will be low (small profits). In order to protect themselves, they conclude a purchase/sale transaction of 100 kg of apples at a price of 1.5 USD per 1 kg.
They concluded a forward transaction - because the fruit grower sold the apples, which will not grow until the end of summer, and the shopkeeper bought them with delivery at the end of summer. This product does not exist physically.
What did they gain? The shopkeeper will get apples at a price not higher than 1.5 USD per kg in the future. If there was a drought and the apples did not yield, their price could jump over e.g. 2 USD. But it also bears the risk. If there is a harvest and there are many apples, it turns out that they cost e.g. 1 USD per kg and the trader will overpay. The orcharder will pay over the price. If there will be a lot of apples and their price drops to 1 USD per kg in wholesale, he will receive a bonus for the risk taken, because he has a 100 kg sale at 1.5 USD. But if there is a drought, he could sell these 100 kg much more expensive.
Currently there are futures contracts for goods, stocks, stock indices, interest rates, currencies, even as exotic as a contract for a temperature level in a certain place and time.
The introduction of futures contracts detached from the physical delivery of a given underlying instrument (i.e. we are only dealing with the financial settlement of a derivative instrument) has brought about a significant increase in their popularity. They ceased to serve only to protect themselves against an unfavorable change in the price of the underlying instrument, and became the subject of lively speculation.

A futures contract is a derivative instrument. This means that the contract price depends on
price development of another financial instrument
called the underlying instrument.
A futures contract is a derivative instrument. This means that the contract price depends on
price development of another financial instrument
called the underlying instrument.

Futures contracts are undertaken by producers and suppliers of commodities to avoid market volatility. These producers and suppliers negotiate contracts with an investor who agrees to take the risk and profit from an unstable market.
Futures markets or futures exchanges are places where these financial products are bought and sold for delivery at a fixed date in the future, with a price fixed at the time of the transaction. Futures markets include most popular agricultural contracts, but now include the buying, selling and hedging of financial products and future interest rates.
Futures contracts are undertaken by producers and suppliers of commodities to avoid market volatility. These producers and suppliers negotiate contracts with an investor who agrees to take the risk and profit from an unstable market.
Futures markets or futures exchanges are places where these financial products are bought and sold for delivery at a fixed date in the future, with a price fixed at the time of the transaction. Futures markets include most popular agricultural contracts, but now include the buying, selling and hedging of financial products and future interest rates.

Futures contracts on cryptocurrencies are essentially agreements to buy or sell a specific amount of a cryptocurrency at a predetermined price at a specific date in the future. This allows traders to speculate on the price movements of cryptocurrencies without actually owning them. It can be a risky investment, as prices can be volatile and unpredictable. It's important to do thorough research and understand the risks involved before deciding to invest in futures contracts on crypto.
Futures contracts on cryptocurrencies are essentially agreements to buy or sell a specific amount of a cryptocurrency at a predetermined price at a specific date in the future. This allows traders to speculate on the price movements of cryptocurrencies without actually owning them. It can be a risky investment, as prices can be volatile and unpredictable. It's important to do thorough research and understand the risks involved before deciding to invest in futures contracts on crypto.