Introduction to Futures and How They Compliment your Trades and Investments

Future contracts are known as a derivative, meaning their value is often derived from the underlying asset. So as the asset (say Bitcoin) goes up and down in real time (spot price) the contracts that are set to expire monthly will go up and down in tandem. Sometimes the future contracts do not move one to one with the spot price and can even be under-priced or over priced to the spot price. This discrepancy can tell you a lot about where traders and investors are thinking about the fair value of the asset. Whether its rising or falling too fast and a correction is due or it is right where it should be and poised to continue up or down.

Check out WTI Crude Oil future contracts from the CME Group.

http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html

You will see each months expiration is lower than the previous months. This is showing that investors in WTI have a bearish sentiment to the market and don't think it will go higher over time. Also with the volume of these contracts traded being in the 50,000-500,000 we can take this data into account pretty strongly. After about 6 months trading volume drops significantly and that is where the future contracts will not be telling you as much.

Lets take a look at CBOE and CME Bitcoin futures.

CBOE Bitcoin Future Contracts
http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures

CME Bitcoin Future Contracts
http://www.cmegroup.com/trading/equity-index/us-index/bitcoin.html

Both of these future contracts have volume in the 1,000s for the near term contract and hardly any volume for expiration further out. So long term Bitcoin futures will not go far with predicting the future of the underlying price. This should in theory change as the market and Bitcoin mature and grow.

Some important info to take into account though when looking at these two contracts is the lot sizes. For CBOE Futures in Bitcoin each contract is for one coins value, in CME they are for 5 coins in value. Since the contracts are cash settled when one CBOE contract is settled you owe 1 coin times the current price(19040 at the time of writing this) for a total of $19040. With CME group a contract is settled to 5 coins or 5 times their current price (19500) for a total of $97,500.

So although CME has a lower volume of trade the amount of value being put up to risk there is actually larger than CBOE's market. Therefore should have a higher weight when you are trying to combine their data into one measurement for your predictions.

So if you are still interested and curious about Bitcoin futures, there is one more stop you should make before jumping in.

https://institute.cmegroup.com/?mkt_tok=eyJpIjoiWVdFNU5ERmhOVGhrWlRBMSIsInQiOiJrRnd1cm94K1FlY2hKRUs1dWNPbEFFQWxmZEZWTm16VDZKNXFvZlZ1a0RmZmc0V3VGeHVEb3ZJSEhCMlZDMlJLZURSaHo4MUUySEFQbVpMdERKS0NqVUkzK0xEOHZOVVU5TFpyekc3QlhUZEhXTDl4VXZCZjhEQldpZEUzYUs4byJ9

This page is from the CME Group which is the largest futures market in the world. They put together a webinar detailing their futures contracts and the specifics of it that are very important such as:
-Limit amounts on purchases
-Margin rates
-When and for how long markets will be paused, and not paused (this one is important! Day of expiration markets will not be halted! Watch the webinar for more details.)
-Sophisticated hedging strategies to limit exposure and risk to a more comfortable amount rather than sitting through wild 10%+ price swings in a days time you will experience fractions of that move.
-and much more.

Their is also other resources giving more broad overviews of Bitcoin, other future contracts, and the way future contract markets work.

At the least I strongly recommend watching the webinar before using future contracts. As with Bitcoin, if you mess something up you are not easily going to be able to fix that mistake, if at all. Anyone who has messed up a wallet address during a transfer knows what I mean.

Also, in case you are still a bit uneasy about futures trading, CME Group has a paper trading platform in the CME Institute's trading tools. Link is Below.

https://institute.cmegroup.com/trading_tools/