Bitcoin has been a dominating conversation topic, especially among the investment community. After starting the year under $1,000, the cryptocurrency eclipsed $19,000 by the end of 2017. With regulated contracts heading to the markets, Wall Street is eagerly making room for the new investment opportunity. However, bitcoin is shrouded in mystery and misinformation, as its concept is abstract with a steep learning curve.

Trading investments without expert knowledge of what it is, how it works and what role it should play as an investment is a dangerous mix. Prior to investing in digital currency futures, it is essential to be as knowledgeable as possible about cryptocurrencies and the format used to invest in them.

Understanding Cryptocurrencies

Before diving head first into the trending, wildly popular investment of cryptocurrencies, it is critical to understand what they are and how they work. Research should be conducted prior to any investment, and investing in bitcoin should receive the same level of research, due to its steep learning curve.

A cryptocurrency is a digital currency with a cryptographic security system. There are over 1,300 cryptocurrencies in circulation. The most prominent digital currency is bitcoin, which dominates the market with its $289 billion dollar market cap (over half of the entire cryptocurrency industry). The engine that drives the technology is the advanced blockchain security feature, which is widely regarded as “unhackable.” Due to bitcoin’s immunity to manipulation from hackers, limited quantity and freedom from government influence, it has experienced a meteoric rise in value, from starting 2017 under $1,000 and testing the $20,000 range by the end of 2017.

Understanding Futures

Futures contracts behave differently than the traditional stock, bond or mutual fund investment, despite many overlapping similarities. The futures contract stipulates the legal requirements of a trade to purchase or sell a commodity at a set price for a future date. For consistency and agreement purposes, they are standardized on a futures exchange platform, and each contract differs based on its underlying asset, quality and quantity of the underlying. The futures market is split into two general uses of hedgers and speculators. Commonly, farmers will use this market to increase their margins on their harvest. Hedgers will lock in a price for their commodity at a future date in time to reduce their risk exposure to a specific market, whereas a speculator will make predictions of future price movements.

*Due to their complexity, it is wise to seek professional guidance when entering this section of the investment world.

Bitcoin Contracts

Until December 2017, the only way to invest in bitcoin was through unregulated exchanges, which experienced a high amount of fraud. Without a regulated contract, there was no uniformity between the exchanges, the price and volume of bitcoin was not transparent and contracts were not standardized. This made it difficult and riskier to trade the cryptocurrency. However,CME Group and Chicago Board Options Exchange (CBOE) introduced the first regulated bitcoin futures contracts, which allow the digital currency to be traded the same way investors trade commodities like crude or gold.

Trading any investment without an understanding of it will increase risk, and is unadvisable. If you are interested in trading bitcoin futures, then please fill out a form to get in touch with our cryptocurrency and futures trading experts.