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Author Topic: Futures trading  (Read 72 times)
ridertiger
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December 18, 2017, 08:53:04 AM
 #1

Wow, CME futures price is actually higher than Cboe Futures.
It is weird that people can buy and sell something they don't own, and then change the price of the actual product.
Can anyone explain that to me? I mean I understand the corn analogy, but then at the end of the season, the marketer is purchasing the actual corn there. So aren't the future people supposed to purchase BTC at some point, driving the price up?
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Ebenezar64
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December 18, 2017, 09:33:51 AM
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Futures trading is pretty much as it sounds. A contract for the future done today. The solutions of the contracts for BitCoin are going to be "cash settled" which means that there will be no actual bitCoin being traded but you are basically betting on the future price of an asset.

You make a contract "selling 10 BitCoins" at say 21k USD/BTC in March of 2018. When that date comes, if price is above 21k USD then you will have made a loss since you sell BitCoin for cheaper than it is worth. Say it is 22k and you sold 10 BitCoins at 21K then you will ahve lost (22-21)*10 = 10k USD. And you will have to pay that difference to the other party. That is how I understand it anyway. There are also some fees for the institution handling the futures contracts but not sure what that is in this case.

If some financial expert could elaborate and correct me feel free Smiley.

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December 18, 2017, 09:57:22 AM
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Futures trading is pretty much as it sounds. A contract for the future done today. The solutions of the contracts for BitCoin are going to be "cash settled" which means that there will be no actual bitCoin being traded but you are basically betting on the future price of an asset. You make a contract "selling 10 BitCoins" at say 21k USD/BTC in March of 2018. When that date comes, if price is above 21k USD then you will have made a loss since you sell BitCoin for cheaper than it is worth. Say it is 22k and you sold 10 BitCoins at 21K then you will ahve lost (22-21)*10 = 10k USD. And you will have to pay that difference to the other party. That is how I understand it anyway. There are also some fees for the institution handling the futures contracts but not sure what that is in this case. If some financial expert could elaborate and correct me feel free Smiley.

The futures has its own purpose in the first place. It is meant to protect someone from paying more of what he can afford to pay at a specified time and for that one has to go the futures market to buy a contract stating those details. Now, the futures has evolved over time, of course. Right now, it is more of a speculative tool and also a way to invest and make some income if one can correctly predict the probable price of something at a given time. As stated, there is no need to own anything where the futures contracts are gauged with. personally, I find this more of a gambling than investing. And that is why I prefer the ETF platform over the futures through they can now go together like the sun to the moon.
ridertiger
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December 18, 2017, 12:10:31 PM
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When folks are selling their milk or corn ahead of time, it is understandable. But as it is, it sounds more like gambling, as you are "betting" on a certain price at some future date.
Anyways, CME futures price are 19645 USD, but CBOE prices are 18106 at the moment. So, does that mean they are betting on these prices for March 2018, or is that the price for now? I am getting these numbers from Trading View.
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December 18, 2017, 05:44:35 PM
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When folks are selling their milk or corn ahead of time, it is understandable. But as it is, it sounds more like gambling, as you are "betting" on a certain price at some future date.
Anyways, CME futures price are 19645 USD, but CBOE prices are 18106 at the moment. So, does that mean they are betting on these prices for March 2018, or is that the price for now? I am getting these numbers from Trading View.

it's not betting on the price in the future. futures are meant (the underling base) for hedging. let us explain this from the point of view of a Bitcoin mining farm:
let's say the miner expects to mine 5000 BTC until the end of the future contract. he can now "lock in" the momentary Bitcoin price, meaning, he can sell those 5000 BTC NOW, even before producing them.
at the end of the contract the price will be determined by the underlying index. So the price of the index tends to become more and more equal to the index the closer the settlement day comes.

ridertiger
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December 19, 2017, 06:53:09 AM
 #6

So, they get the price now, instead of the future. But if the price is way higher, the guy who sold them loses, so the sellers want to keep the price down then. I think I understand why people think the price will be lower in this future. However, aren't those sellers supposed to do something to keep the price down? So, they need a lot of real btc to short so that they can keep the price down right? Where do they get all that btc? They have to buy it, which increases the price. If the current btc rich folks do it, they have nothing to gain in decreased btc prices.
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December 19, 2017, 03:21:50 PM
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When folks are selling their milk or corn ahead of time, it is understandable. But as it is, it sounds more like gambling, as you are "betting" on a certain price at some future date.
Anyways, CME futures price are 19645 USD, but CBOE prices are 18106 at the moment. So, does that mean they are betting on these prices for March 2018, or is that the price for now? I am getting these numbers from Trading View.

it's not betting on the price in the future. futures are meant (the underling base) for hedging. let us explain this from the point of view of a Bitcoin mining farm:
let's say the miner expects to mine 5000 BTC until the end of the future contract. he can now "lock in" the momentary Bitcoin price, meaning, he can sell those 5000 BTC NOW, even before producing them.
at the end of the contract the price will be determined by the underlying index. So the price of the index tends to become more and more equal to the index the closer the settlement day comes.

That is how it would normally work yes but since everything is "cash settled" in the CME futures there is never any BitCoin selling or buying. There is only a "gambling" on the future price. If an investor goes long on 100 BTC in a futures contract that is valid until March at a price of $19000 then he is betting that BitCoin value will be higher than 19k in March. But when March comes and say BitCoin is $18000 then he won't have to buy 100 BitCoin at $18000 but instead pay the difference = (19000-18000) * 100 = $100'000 to the other party. Likewise if the price would be 20k he would have received that amount instead.

There are NO BitCoin trading places at all. What you can see on CME BitCoin futures markets is that future bitCoin price are all around 700 dollars below initial futures price (19'100 - 700 = 18'400). That is because the contracts the CME is putting out right now are on BitCoin price "prospected price" at Jan, Feb and March. If you go long on BitCoin for Jan (minimum "contract" is 5 BitCoin) then if price is above $18'400 you will get:
("BitCoin actual price at 31st January" - 18'400)*5 in USD.

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capoeira
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December 19, 2017, 03:36:49 PM
 #8

Yea, there are no real coins envolved. In my exemple the miner would hold the coins until the settlement and than sell them on the market. the result for him is the same: He is "selling" his future coins now.
But yea, this futures are manly for speculation. conservative traders wont trade on Bitcoin exchanges, so they now have an option.
Does it affect the market at all? hard to say. some could be manipulating the real market to make their futures positions profitable, for example. OR there might be some volume being moved from real market to them, which would effect offer/demand on the real market.
anyways: the volume there must be very small still, compared to the other futures, no?

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December 19, 2017, 10:26:09 PM
 #9

No direct connection between Futures contract and SPOT(underlying), but there is an indirect connection made by those who do arbitrage in order to profit from the closing gap.

If Futures is above spot, the arbitrageur will short Futures in CME and long SPOT in real BTC(Gemini, GDax, etc). Hence the future markets can affect spot price and vice-versa.
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December 20, 2017, 01:12:49 AM
 #10

No direct connection between Futures contract and SPOT(underlying), but there is an indirect connection made by those who do arbitrage in order to profit from the closing gap.

If Futures is above spot, the arbitrageur will short Futures in CME and long SPOT in real BTC(Gemini, GDax, etc). Hence the future markets can affect spot price and vice-versa.


good point. I actualy do that all the time with Okex futures

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