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Crypto futures trading is one of the many ways to get exposure to the crypto market and leverage the price movements of cryptocurrencies without directly owning them. While Bitcoin futures trading came into existence in 2017 itself, Ethereum futures trading was introduced by the CME platform in 2021.
Ethereum futures trading allows you to speculate on the future price of Ethereum without actually owning Ether. Compared to other types of derivatives trading such as spot trading and options trading, futures trading is the most popular and convenient method. In this article, you will learn what Ethereum Futures are and the benefits and risks of trading them.
Ethereum Futures is one of the derivatives contracts that contains a set of terms and conditions, like buy or sell action, at a predetermined Ethereum price on a future date. Upon reaching the predefined date, the contract will be executed between the agreed parties based on its terms.
Initially, this trading method was popular for commodities and stocks, and was introduced to Bitcoin. For the last couple of years, we are also able to trade Ethereum Futures on popular crypto exchanges.
Let us understand how Ethereum future trading works with an example. Assume, you agreed to sell Ether at $5,000 after 6 months in your contract. If the price of Ether is $4,500 after 6 months, when your Ethereum futures contract gets executed, you will make a quick profit of $500.
On the other hand, if you agreed to buy Ether at $5,000 after 6 months, when the contract gets executed, you lose $500 because the actual price of Ether is $4,500. This way, without actually owning ETH coins, you will gain $500 in the first case and lose $500 in the second case.
Being the second largest cryptocurrency, Ethereum futures are gaining traction in the community. Following its hype, top companies such as Volatility Shares, VanEck, Proshares, Grayscale, and others are also applying for Ethereum futures ETF listing. The CME platform even introduced options on Ether futures in September last year.
Based on the time period and the type of execution, there are different types of Ethereum futures. However, not all exchange platforms that support Ethereum futures provide all types of futures trading. So, before choosing a platform to involve in Ethereum futures, it is important to keep these things in mind.
These are the regular futures contracts that we can see on any traditional futures trading platforms. They are the simple version of futures contracts with a predefined date and settlement amount. The most popular and leading exchange platform, CME (Chicago Mercantile Exchange) offers this type of futures for two top cryptocurrencies, Bitcoin and Ethereum. Other crypto exchanges like Binance and Bybit also support these futures contracts and they mostly offer quarterly futures which get executed for every 3 months.
Perpetual futures do not have any expiry date and the two parties that agree on this type of futures contracts, settle their payment based on their open positions at certain hours of the day. Unlike the previously discussed version, perpetual futures do not have a time period and execute the contract when the expiration date reaches. For example, Bybit crypto exchange executes Ethereum perpetual futures contracts for every eight hours.
No, Ethereum futures and Ether futures are both one and the same. The confusion actually starts from whether Ether and Ethereum are the same. To begin with, Ether is the native cryptocurrency of its underlying Ethereum blockchain network. However, the top crypto communities use both the terms “Ether” and “Ethereum” interchangeably. Thus, there is no difference between Ethereum futures and Ether futures.
Ethereum futures are steadily gaining popularity in the industry as many popular platforms like ProShares, Volatility Shares, Bitwise, Roundhill are applying for Ethereum based ETFs and the first Ethereum futures ETF in the US is set to go live in October this year. While it is beneficial to trade Ethereum futures instead of directly getting exposed to the volatility of market prices, there are also some risks involved in it. Nonetheless, you need to consider both the benefits and risks before you actually start involving your hard earned money.
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